The European market (Stoxx-600) is currently trading around 364.36 in the mid-EU session Monday, slumped by almost -0.32% on techs, tobacco, Italian budget and Brexit saga. But a rebound in oil (helpful for energies) and higher USD (weaker local currency) is also helping from any deep slump. Tobacco stocks were under stress amid renewed regulatory overhang on menthol cigarettes as the US FDA maybe planning to ban it; BATS is under stress. Telecoms are upbeat on favorable M&A deal news for Telecom Italia (MI:TLIT), whose network business will be merged with smaller rival Open Fiber.
The overall risk-on sentiment was also affected by the European political risk out of the UK, Italy and also Germany. The market was also undercut by the concern of US-China trade war after the WH adviser Navarro said on Friday “if and when there is a trade deal with China; it will be on Trump’s terms and not Wall Street’s terms”.
Financial software service provider Simcorp tumbled after reporting below expected report card, while Zuerich plunged on guidance warning if proposals from the Federal Office of Civil Aviation to cut transfer payments are implemented. The German software giant SAP slid on M&A after the company announced its acquisition of consumer sentiment tracker Qualtrics International for $8 billion, a price considered expensive by the market. The German chipmaker Infineon was under pressure on subdued guidance warning from the industry leader Qualcomm (NASDAQ:QCOM) and Apple (NASDAQ:AAPL) despite an upbeat report card.
The European banks were also undercut by growing hard Brexit and Italian budget worries, as the EU’s deadline is nearing on Tuesday to “rectify” the 2019 draft budget. Moreover, the health of the European banking sector is in question after a report that the fragile Banca has only around EUR 400M to support its worsening capital base amid increasing NPA/NPL.
Germany 30
Germany’s Dax-30 is now trading around 11457, slumped by almost -0.63%, while Italy’s FTSE MIB-40 slumped by -0.34%. Italy’s PM Conte and his two deputies Di Maio, Salvini to meet late Monday on a budget as the EU deadline for the budget re-submission to the European ends on Tuesday.
Pivot: 11685 Support: 11440 11340 11220Resistance: 11780 11835 11905 Scenario 1: STRONG ABOVE 11685 Scenario 2: WEAK BELOW 11650-11625 Comment: NEAR TERM RANGE: 11040-11835
As of now, Italy's government has yet to show any signs that they will be deviating from the 2.4% deficit target. All these Italian budget sagas are affecting the EURUSD coupled with the lingering Brexit drama and as a result, EURUSD plunged by almost -0.70% and made a 17-month low of 1.1240.
As per the report, Italy’s FM Tria may lower the 2019 GDP forecast to meet the EU budget demand. As a reminder, Italy was “requested” by the European Commission to submit a new or revised 2019 draft budget plan (DBP) by 13th November Tuesday, after the rejection of the earlier 2019 DBP.
According to the Italian coalition government’s own budget, the 2019 GDP growth is projected at 1.5%. And, the budget deficit target is 2.4% of GDP. Tria has pledged last week to maintain the “pillars” of the budget. And clearly, the pillars don’t necessarily include growth forecast. Tria could cut the growth estimate to 1.2-1.0% in line with the EC’s own projections of 1.2%. Also, Tria might look at the automatic mechanism to cut public expenses to keep the deficit under the 2.4% cap; i.e.the lower actual GDP and lower expenses and vice-versa.
But as per the latest report, Italy’s PMO said there will be no budget meeting to happen on Monday contrary to an earlier report, while Di Maio warned that respecting EU limits on a budget is "suicide". Thus it’s almost clear now that Italy will not cut its budget deficit projection of 2.4% and is now readying itself for a long “suicidal war of attrition” with the EU. Subsequently, EURUSD is now also falling, eyeing for a “suicidal” target of 1.10 areas.
Pivot: 1.131 Support: 1.123 1.116 1.109Resistance: 1.136 1.143 1.15 Scenario 1: STRONG ABOVE 1.13100 Scenario 2: WEAK BELOW 1.13050-1.12995 Comment: NEAR TERM RANGE: 1.10000-1.15000
UK 100
The UK’s FTSE-100 edged up +0.25% to around 7123, helped by exporters/MNCs amid a plunge in GBPUSD over 1% on fading hopes of a soft Brexit. The emergency UK cabinet meet was canceled and now it looks like that the November special Brexit summit is also looking remote at this stage. The EU Chief Brexit negotiator Barnier the Brexit deal is not reached yet and he is not optimistic about talks for a potential summit this month. But energies are helping the UK market on higher oil, while cigarettes makers are on the back foot.
As per attest Brexit soap-opera edition, the UK PM spokesman said:
“The Cabinet has backed PM in moving forward on Brexit; expects them to continue to do so and there is nothing to suggest that other ministers are thinking about resigning. There will be a Cabinet discussion as and when there is something to discuss on the withdrawal agreement and future framework Brexit negotiations are ongoing and there has been good progress in negotiations, but there are still substantial issues to overcome over the Northern Irish backstop. Although, we want to make progress as soon as possible but must not be at any cost and officials were negotiating until the early hours, more talks on Monday”.
Meanwhile, the EU’s Tusk has warned the UK that the deadline for the November summit is Wednesday night. As per the report: “Tusk has told No10 that a deadline for a November summit is this Wednesday night. But it appears the Govt is beginning to give up hope for one. Whitehall source: ‘I wouldn't get your hopes up’. So, the likelihood is now a December 13/14 summit, which pushes the Meaningful Vote into January. Will be very tight to pass all the ensuing Brexit deal legislation in less than 3 months, meaning Article 50 could have to be extended by a month or two”. The GBPUSD is trying to take some support amid all these Brexit hopes and hypes.
Pivot: 7200 Support: 7080 7035 6950Resistance: 7255 7390 7525 Scenario 1: STRONG ABOVE 7200-7255 Scenario 2: WEAK BELOW 7170 Comment: NEAR TERM RANGE: 6950-7255
WTI Oil
In commodities space, oil jumped to a high of 61.27, over 1% on Saudi jawboning as its oil minister Falih vowed “to do whatever it takes”, a Draghi style approach to balancing the oil market as oil plunged and entered into a bear territory on Friday, Saudi Arabia’s oil minister said: “OPEC+ to do whatever it takes to balance market and that includes production cuts. There is a need to cut 1 mbpd from October levels and will not allow oil inventory to build up”. Earlier the Saudi oil Minister said Saudi Arabia will lower production by 0.50 mbpd in December on a seasonal slide in demand.
Pivot: 59 Support: 58 57.7 56 Resistance: 60.75 61.8 62.8 Scenario 1: STRONG ABOVE 59.25-59.50 Scenario 2: 59.00 Comment: NEAR TERM RANGE: 57.70-64.10