European update – Italy and Brexit lift sentiment

Italian stocks rally on reports of government deficit concessions

US futures are pointing to a stronger open on Monday as more traders return from the Thanksgiving break, facing a market that still looks extremely vulnerable following another sell-off in recent weeks.

Italian stocks have been the outperformer in Europe this morning on reports that the government may consider reducing its deficit target in a bid to avert a disciplinary procedure in Brussels and a backlash in the markets. While both populist coalition partners in government remain determined to deliver on election promises, there is an apparent willingness to negotiate on the deficit target.

This is providing a major boost to risk appetite this morning, lifting Italian stocks and lowering yields. The euro is also ticking a little higher, buoyed by the prospect of a less volatile confrontation between Rome and Brussels, which has hampered growth prospects and raised concerns about the growing populism and euroscepticism in the region.

Italy to change budget stance lifts risk appetite

Sterling higher as EU27 backs Brexit deal

The pound is also a little higher at the start of the week after Theresa May overcame the first – and smallest – hurdle to her Brexit deal getting over the line, as leaders of the EU27 gave it their backing. May now has the simple job of getting it through a parliament that has widely and publicly labelled it a bad deal, with many threatening to vote it down. It should make for an interesting few weeks.

Gold benefiting from weaker USD

Gold has been among the beneficiaries of the improved risk environment this morning. While greater risk appetite is typically associated with softer Gold prices, the weaker dollar – on the back of a rising euro and pound – is lifting the yellow metal in European trade. This could become a common theme over the coming months, although the pound may be extremely volatile in that time with more twists likely ahead.

DAX steady, German business climate misses estimate

Oil pares Friday’s losses

Oil is also making decent gains at the start of the week, up around 1.5% on the day, although this pales in comparison to the losses seen on Friday as traders question whether OPEC+ will follow through on an production cut next week.

Trump has been publicly pressuring the group to let prices fall while praising Saudi Arabia for its role in the falls, something sceptics have tied to the President apparently turning a blind eye to the country’s role in the Khashoggi murder. There is perhaps a belief that the Saudi’s will avoid taking measures to significantly raise prices next week in a bid to appease Trump, although I remain sceptical this will happen.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.