Market movers today
Markets will keep a close eye on today’s November Ifo figures in Germany, especially after gloomy PMI readings on Friday. Both the current assessment and business expectations are expected to edge down further.
A busy day of ECB speakers as well, with Praet, C uré and Draghi due to speak. We will keep an eye on any rhetorical shifts, especially regarding euro area growth momentum, after the latest downside surprises in the data.
Later this week, euro area and US inflation data as well as newsflows around the upcoming meeting between Chinese President Xi Jinping and US president Trump will be a key market theme.
Selected market news
The European Council formally endorsed the Brexit deal at a special summit on Sunday, after Britain and Spain reached an agreement over the future status of Gibraltar. EU leaders were united in saying that it was the best deal on offer and made it clear that it cannot be renegotiated even if the UK parliament rejects it. A European Parliament vote is expected in February of March 2019, but before then the bigger hurdle for PM Theresa May looms in convincing a hostile House of Commons of the merits of her Brexit deal before the vote in December. In a cabinet meeting today, she is expected to discuss the best strategy to avoid a defeat, before touring the country in the coming weeks to enlist support for her agreement among politicians and voters (see also Brexit Monitor , 16 November 2018). Markets will also keep an eye on whether there will be a ‘no confidence’ vote in May and whether the supporting party, Ulster’s DUP, will pull its support for the government.
The cyclical divergence between the US and Europe continues, causing EUR/USD to fall back below 1.14. While November US manufacturing PMI pointed to continued strong growth, euro area PMIs did not bring the rebound in momentum that markets were hoping for. Instead it looks like some the recent euro area growth weakness will persist in Q4, as composite PMI fell to a 4-year low. Manufacturing remains the main area of weakness amid slower global demand, rising political and economic uncertainty, trade war repercussions and persistent sluggish car sales. However, the slowdown is also broadening out to service sector activity, where demand and new business inflows have waned recently. The data is increasingly challenging the ECB’s ‘balanced’ growth assessment and its belief in temporary factors lying behind the recent slowdown, although we do not expect it to derail the QE exit strategy at the 13 December meeting.
After closing 0.7% lower on Friday, S&P 500 futures indicate a rebound this morning, as Asian equity markets nudged higher. Brent oil fell below USD60/bbl for the first time since October 2017, driven in part by a stronger USD, spill-overs from negative sentiment in equity markets as well as questions about the likelihood of an OPEC production cut at the 6 December meeting. It marks the seventh consecutive week of losses for the crude oil price.
