European Bourses Mixed, Sterling feeling Brexit Heat

Risk aversion drove equity markets across Asia and Europe lower, along with the Sterling and Euro. The US Dollar, which is considered a safe haven in times of turmoil, was buoyed on the back of global tensions and global growth uncertainties. A spike in US bond yields has also hurt emerging markets.

The UK benchmark, FTSE 100, bucked the European trend as a weaker sterling helped the index trade slightly higher. The DAX, Euro Stoxx 600 and Stoxx 50 were all in the red as lingering worries from Brexit and Italy hampered investor confidence.

For mainland Europe, the focus remains on the Italian spending budget and wide fiscal deficit. Italy must submit a revised budget to the EU before a Tuesday deadline. So far it has refused to cut the current draft budget deficit which has promoted a clash with Brussels.

In addition, markets were hurt by reports that Banca Carige, whose shares and bonds were suspended, would need €400million to fill a capital gap. The bank would issue a convertible bond then offer shares to repay the bond. This reinforced the Italian banking crisis and has consequently kept BTP/Bund yield spreads above a key psychological level.

In UK, a turnaround in Brexit optimism hurt the UK currency as doubts whether Prime Minister Theresa May could get the backing of the EU and her own Conservative party for any Brexit deal. PM May was forced to cancel plans for an emergency cabinet meeting to approve a Brexit agreement. Moreover, a November summit looks very unlikely unless something dramatic changes in the next few days. Progress is being made, though vital subjects-largely the issue around the Irish backstop-remain.

Over the year, a reoccurring theme has taken hold of markets, as GBP has rallied over Brexit progress only to quickly reverse gains over Brexit pessimism.

Active moves were also seen in commodity markets where oil pared some of its recent losses. Oil giant Saudi Arabia said that Riyadh could reduce supply by 500,000 bpd in December. This would reduce global oil supply by 0.5%. Furthermore, Khalid Al-Falih stated we need to do whatever it takes to keep inventory in a narrow band, and maintain long-term market balance. He also said technical analysis shows we need to reduce supply by 1 million bpd from October levels.

UK Data for the week ahead

Date

Time (GMT)

Data

Forecast

Previous Read

Tuesday 13th

09:30

Average Earnings Index (3m/y)

3.0%

2.7%

 

 

Average Earnings Index (ex-Bonus)

3.1%

3.1%

 

 

Claimant Count Change

4.3K

18.5K

 

 

Unemployment Rate

4.0%

4.0%

 

 

 

 

 

Wednesday 14th

09:30

CPI (y/y)

2.5%

2.4%

 

 

Core CPI (y/y)

1.9%

1.9%

 

 

PPI Input (m/m)

0.6%

1.3%

 

 

PPI Output (m/m)

0.2%

0.4%

 

 

RPI (y/y)

3.4%

3.3%

 

 

HPI (y/y)

3.3%

3.2%

 

 

 

 

 

Thursday 15th

09:30

Retail Sales (m/m)

0.1%

-0.8%

 

 

Retails Sales (y/y)

 2.8%

3.0%

 

 

Core Retail Sales (m/m)

0.2%

-0.8%

 

 

Core Retail Sales (y/y)

3.3%

3.2%

 

13:00

MPC Member Tenreyro Speaks

 

 

 

 

 

 

 

Friday 16th

Tentative

Inflation Report Hearing

 

 

 

14:30

CB Leading Index (m/m)

 

-0.2%

 

 

 

 

 

 

 

 

 

 

 Brexit Uncertainties Weigh on GBP

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© Akif SH. Din, AGORA-direct Limited, 12/11/18

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