Market movers today
A very eventful week starts rather slowly with the big event today being inflation data in Norway ( see Scandi markets) and the last day of the Brexit debate ahead of the vote in the UK House of Commons. Otherwise, key events this week are monetary policy decisions in the euro area, Norway and Switzerland, flash market PMIs and CPI inflation in the US and Sweden. Also, market focus will remain on global trade war concerns, general risk appetite and the oil price following Friday’s OPEC+ deal.
With respect to Brexit , it seems unlikely PM Theresa May’s Brexit deal will be passed tomorrow despite her attempt to secure public and political backing. As a defeat is widely expected, markets would react to the size of the defeat, although we doubt the market reaction would be significant, as political uncertainty is likely to remain elevated. Many political analysts say it is likely that May will try to hold a second vote in the House of Commons at a later stage. What happens if the deal is voted down a second time? Well, then we are in uncharted territory, which opens up for a range of possible outcomes. We have updated our game tree of the Brexit end-game. See Brexit monitor: Vote on Tuesday is not the final word in the Brexit saga , 9 December.
Selected market news
The sour risk sentiment from late Friday trading has continued into this week with most Asian indices trading in the ‘red’ this morning. Key to the sustained weak risk appetite are disappointing Chinese trade figures alongside news that China’s Vice Foreign Minister has summoned the US ambassador over last week’s arrest of Huawei’s CFO. 10Y US Treasury yields have consequently fallen back to around 2.83% – the lowest level since August.
Friday’s non-farm payrolls disappointed slightly relative to consensus, with headline job growth, revisions and wage growth falling short of expectations. Meanwhile, we do not think markets should over interpret the release as the labour market still looks sufficiently strong for the Fed to gradually hike rates to the estimated ‘neutral’ 3.0%.
On Friday, OPEC+ agreed to cut production by 1.2mb/d with effect from January 2019. The decision followed two days of back-and-forth negotiations. The output cut will be based on the level of production in October but the country-specific production cuts will not be published even if Iran, Libya and Venezuela are exempt from the deal. OPEC is set to contribute 800kb/d while non-OPEC will contribute the remaining 400kb/d. The deal is set to last six months and is up for review in April. In our view, this deal underpins that oil market fundamentals in general lately have become more positive and we expect the oil price to move above USD70/bbl over the coming month.
Late Friday, Annegret Kramp-Karrenbauer (AKK) was elected as new CDU party leader. On balance, it means policy continuity and makes it more likely that Merkel will stay as Chancellor until 2021, which is positive for EMU reforms.
Over the weekend, the right-wing Belgian party N-VA left its position in the government in protest against a likely international UN agreement on migration, which is set for approval in Morocco next week. The decision comes just months before elections.
