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:

Brexit

The pound is sinking on what is likely to be a choppy week for the currency on a report that the U.K. and the European Union are on course to miss a key milestone this week on the path to securing a Brexit deal. People familiar with the matter said a week of intense negotiations failed to break the deadlock. An EU summit is coming up this week and the pound, and therefore the U.K.’s stock market, is likely to whipsaw as leaks come out tipping the balance in either direction on the chance of the U.K. leaving with or without a deal. FTSE 100 futures are pointing higher on the weaker pound.

U.S.-Related Tensions

We’re expecting the U.S. Treasury Department to release its report on currency manipulation and the key question is whether China is on the list. If the U.S. leaves the yuan out, it could help lay the groundwork for an easing of trade tensions between the two nations and might provide a boost to those sectors most bruised by the dispute, including semiconductors, miners and autos. Note, however, that U.S. President Donald Trump used a CBS interview to hint at further tariffs on China. Tensions with Saudi Arabia, however, are rising, with Trump said to be weighing actions against the kingdom over the disappearance of journalist Jamal Khashoggi. Oil is higher on the news.

Italy...

Italy and all its EU counterparts have to submit their budgets to the European Commission for approval, and there has been no indication from the bloc’s officials that they will approve the Italian version in its current form. One can expect further critical comments from EU officials on the budget and defensive statements from Italy’s government, keeping the tensions between the two high and very possibly putting yet more pressure on Italian government bonds.

... and Germany

Also keep an eye on German markets after Chancellor Angela Merkel suffered a blow when her Bavarian sister party dropped to a historic low and lost its absolute majority in a state election. The result would reverberate through Merkel’s already fractious government and indicates the scope of voter dissatisfaction with Germany’s political establishment. There could be some impact on the euro and some on German stocks from the news, but this is likely a story to keep watching as it develops.

House Prices

Last week was miserable for U.K. housebuilders with particularly weak price data for the London market, which has been battered by Brexit uncertainty. But figures from property-listings portal Rightmove indicate tentative signs of a rebound in central London, where asking prices in October rose from the previous month. Given the woeful news flowing from the industry of late, this could give a lift to the sector.

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