Here's What to Watch in European Stocks This Morning
(Bloomberg) -- Good morning. Here’s what we are watching ahead of the market open in Europe:
May Standing Firm
Prime Minister Theresa May is forging ahead and showing little sign of giving in to the forces within her party who want her out and her Brexit deal thrown in the trash. On Monday, she’ll address the Confederation of British Industry and ask business leaders to throw their weight behind her Brexit plan, but the action is likely to take place outside of that. According to The Sun newspaper, those seeking to oust the PM have not yet secured the requisite level of support to do so. However, any further headlines on this topic should move an already jittery pound, impacting U.K. stocks.
Nothing happened at the weekend to suggest that trade concerns around China are on the verge of abating. U.S. Vice President Mike Pence sharpened his attacks on China over the weekend, most notably calling for countries to avoid loans that would leave them indebted to Beijing. The Asia-Pacific summit also ended in disarray after a spat between the U.S. and China over language in a final statement. And don’t forget tensions with the EU, which is set to tighten its rules over threats to national security from foreign investments amid political unease about Chinese acquisitions. Keep an eye out for volatility in those trade-hit sectors, including miners, semiconductors and cars.
House Price Misery
Arguably only equaled by weather as the most frequent conversation topic for Brits, house prices will be on the tips of tongues again after some dismal new data from Rightmove. U.K. asking prices dropped for the first time since 2011 in November and fell the most since 2012, mainly due to drops in London and for the priciest homes. That’s not likely to provide much salve to the country’s housebuilders or estate agents. However, it is worth remembering that the supply and demand dynamics in the U.K. housing market remain significantly imbalanced. There are simply not enough new homes being built to meet demand, so that is likely to limit the battering Brexit can deliver to domestic prices.
Eyes will be trained this week on Swiss conglomerate ABB Ltd. following reports of a growing number of bidders for its power grids arm, which makes products to channel electricity over long distances and which could be worth around $13 billion. With earnings season winding down, big deals like this may come into sharper focus and if ABB can get a really good price for the unit, could spark questions of more deals to come. This also comes as a report from consultant Alvarez & Marsal Inc. indicates large industrial firms are becoming the most frequent target of activist interest in Europe.
Italy’s Big Week (Again)
It’s likely to be a tumultuous week for Italian assets. The European Commission is due to issue its opinion on all EU budgets on Wednesday. Given Italy remains resolute on its fiscal plans, the EC will almost certainly say the country is in breach of fiscal rules and could prompt another day of turmoil in Italian stocks and government bonds. The EC is also seen likely to bring forward its report on Italy’s debt, which will probably say the government isn’t doing enough to reduce its burden. Watch for any leaks around the topic in the days leading up the decision which could impact bond markets and Italian banks.
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