Weekly Digest - INVESTEC
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Last week brought November to a strong close, with Jerome Powell’s perceived softening of tone driving US equities to a 5% gain. Today, markets are more broadly reflecting a collective sigh of relief at the Trump/Xi accommodation – with risk-off trades weakening, specifically the Dollar is down versus commodity currencies and particularly versus the Yuan and risk on bets strengthening – notably oil prices are trading strongly up, alongside agricultural products that will directly benefit from a ceasefire between the US & China – however temporary.
The political fragility in Europe is again in focus this week. Aside from Brexit, the media attention is drawn to the Yellow-Jacket protests in France. In Italy, the weekend press has suggested that informal requests have been made to Italy to reduce their deficit target by just enough to get it below 2% from 2.4%. This is a lesser cut of approximately €4.5 billion, to the €6-7 billion publicly highlighted previously as potentially acceptable. For market sentiment the important point is that things are moving forwards, not backwards. On Friday, the CDU elections to find a successor to Angela Merkel will attract scrutiny, as the winner of the contest may have a materially different relationship with Europe and, more particularly, the European Central Bank (whose leadership is also changing in 2019).
In the UK, Brexit overwhelms everything in the run-up to the parliamentary vote on the deal on Tuesday-week. The weekend news is that Labour, the DUP and the Sottish Nationalists are likely to unite to seek a vote of confidence in the government if, as expected, the deal is not passed at this first attempt. Financial market consensus is that it will eventually pass parliament, so if a confidence vote is held and it leads to a general election – a material re-assessment of UK prospects could result.