Italian Budget Submitted to EU
It’s been a mixed start for European stock markets after Wall Street fell yet again, but Asian stocks posted gains. Overnight developments with the Italian budget saw the finalised bill submitted to the EU. The budget starts to deliver on the costly election promises made by the coalition government, however it also runs the risk of being rejected by the EU. The EU’s executive branch is also in a tough spot here, as any rejection of the budget would further stoke the anti-EU movement in Italy and risk talks of a referendum on EU and Eurozone membership. This morning European stocks are mixed, but the Euro is higher against the Dollar.
Saudi Arabia Deny Khashoggi involvement
Developments in Saudi Arabia are also a big talking point ahead of the “Davos in the Dessert” summit as it’s being dubbed. However in the wake of the Khashoggi disappearance, many high profile executives, such as JP Morgan’s Jamie Dimon have pulled out. Yesterday Donald Trump said that he was willing to accept the Saudi denial of any wrongdoing, after it’s though that Jamal Khashoggi was killed within the Saudi consulate in Istanbul.
Brexit is yet again on the horizon as the markets gear up for the EU Brexit Summit starting tomorrow. Yesterday’s statement in the Commons by Theresa May yet again tried to prepare people for there to be no progress made over the key issues this week, while also ensuring that the possible Brexit Summit in November, when a deal is supposed to be completed by, was not going to be canceled.
The PM called for “cool calm heads” and insisted that the EU and UK are not far apart when it comes to the big issues. The biggest of those issues however remains the Irish border. Britain remains steadfast in its calls for a temporary backstop that include a UK wide customs union with the EU. The fear for MP’s in the UK is that the deal would leave the UK in a temporary customs union with no end date, meaning that the EU could hold the UK in the deal indefinitely. Allowing the UK to remain in the EU customs union indefinably doesn’t seem to be an option for the PM, while Barnier wants to add a back stop to the backstop in case there is still no deal in place when the initial insurance policy ends. The Irish border remains the biggest risk to Brexit, and in my opinion still provides a risk that Brexit will not happen at all.
Earnings and Data
It’s a big day for economic and corporate data as earnings season starts in the US. This morning has seen a strong UK jobs report with average earnings ex bonus topping 3% for the first time since 2015. The unemployment rate was unchanged at 4% showing that despite the uncertain Brexit backdrop the labour market remains strong. The numbers also lend themselves to the Bank of England’s campaign of gradual rate increases.
On the earnings front in the US we look towards the big releases of the day with both Morgan Stanley and Goldman Sachs looking to follow Bank of America yesterday with strong results. However, after the recent pressure on tech stocks and US equity markets in general all eyes will be on the Netflix results after the closing bell tonight. Expectations are for $0.68 per share, but anything negative around the data could spark further selling in the heavily weighted FAANG stocks.
In January the Fed needed to put the Taper Genie back in the bottle; now they need to convince the short end crew to back off repricing the Fed Funds strip