After seven weeks of heavy declines a rebound in oil prices, and a more conciliatory tone from the Italian government is helping provide a strong tailwind to European stocks at the beginning of a new week, though some positivity out of Asia has also helped.
Reports that the Italian government is considering a lower deficit target of 2%, down from 2.4% for its contentious budget, is helping drive gains in Europe, though at the risk of being cynical, this could be the latest attempt by Deputy Prime Minister Salvini to keep a lid on yields in the Italian bond market as the government looks to get their contentious budget through the Italian parliament. Whatever the reasons Italian yields have dropped sharply to their lowest levels since the end of September.
The softer tone also makes it harder for the European Commission to censor Italy too harshly if the government is able to show that it is keen to co-operate.
The pound has barely reacted to the weekend signing off by EU leaders of the Brexit deal agreed by Prime Minister Theresa May, maybe because the odds of it being passed through the UK parliament range between slim and none at this point, and the mood music out of Westminster thus far shows little sign of changing between now and the possible 'meaningful vote' which is expected to take place on 12th December.
This week’s focus is likely to be geared towards the end of the week and the G20 meeting in Buenos Aires where it is expected that President’s Trump and Xi Jinping will meet under the auspices of trying to coalesce around some form of discussion on trade. Expectations remain low about a solution in the short term with the prospect that tariffs could well increase at the beginning of next year from the current 10% to an increased rate of 25%. While deal expectations have been set to a low level, an agreement to not implement the proposed increased rate at the beginning of next year could be described as progress.
The Federal Reserve is also likely to be in focus ahead of this week’s FOMC minutes as well as a speech by Fed deputy Chairman Richard Clarida in New York tomorrow. Last week the Fed vice chair set the cat amongst the pigeons with comments that were construed as dovish in some quarters when he said the central bank was getting close to neutral on rates, and that it would be appropriate for any further hikes to be much more data dependant.
This has raised the prospect that the Fed maybe much closer to the end of its hiking cycle than previously thought. The US dollar has come under pressure today while 10 year yields have rebounded from six week lows.
The rebound in oil prices ahead of next week’s OPEC meeting and a possible production cut has helped boost oil and oilfield services providers, with John Wood Group (LON:WG) leading the way here, though a broker upgrade from HSBC has also helped here.
The more buoyant tone in Europe looks set to see a strongly positive US open after last week’s heavy declines, with most of the attention likely to be on US retailers where it was reported that online sales hit a record $6.22bn. If this pattern extends into today’s Cyber Monday then the US economy could well sustain its decent performance over the last two quarters right into the end of the year.
Amazon (NASDAQ:AMZN) reported that customers were shopping at record levels, with the Apple (NASDAQ:AAPL) Watch selling out at Target (NYSE:TGT), while Samsung (LON:0593xq) TV’s, Dell (NYSE:DVMT) laptops and GoPro camera were also popular, largely due to some heavy discounting.
Dow Jones is expected to open 275 points higher at 24,560
S&P500 is expected to open 30 points higher at 2,662
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