Here’s What to Watch in European Stocks This Morning

(Bloomberg) -- Good morning. Here’s what we’re watching ahead of the market open in Europe, including…

Italian Breakthrough

The European Commission is due to meet to discuss Italy’s latest budget proposal for 2019 and maybe, just maybe, there will finally be a breakthrough. The battle over Italy’s higher-than-anticipated budget deficit target has been raging for months but reports on Tuesday evening suggest a technical agreement has been found, albeit one which will still need ratification by the commission. The news could bring further relief to Italian bonds and the country’s banking sector, which had already benefited from reports Italy’s populist government was making concessions after previous intransigence. Watch Italian assets closely today.

Dovish Hikes

The Federal Reserve will announce its interest rate decision after the close in Europe and another quarter-point hike is still expected. What comes next is the bigger question. A dovish hike would appear to be considered the most positive outcome for markets, a hike but one that points to a slower hiking cycle and one more dependent on economic data rather than a pre-ordained path. Yet a too-dovish Fed may raise concerns of a forthcoming economic slowdown and spook stocks. The balance, particularly with a critical president on one’s back, will be very difficult for the Fed to strike.

Oil Stays Battered

Yet another miserable day for European oil stocks on Tuesday, with crude prices sinking  once again on ongoing concerns about a supply glut in the U.S. and whether OPEC cuts will offset this. U.S. inventories data are due on Wednesday in afternoon trading for Europe and could cause another bout of volatility for a sector which, until the fourth quarter got under way, had been having a pretty good year. Indeed, as the European open approaches, crude prices have stayed in battered territory, so don’t expect much recovery to emerge.

Chip Misery...

Everything that goes up. Semiconductor stocks had enjoyed a great run coming into this year on surging demand for their products, but the results from U.S. firm Micron Technology provide yet another nail in the coffin for that streak. Micron, the largest U.S. maker of memory chips, issued a sales forecast  that disappointed analysts and which will spark more concern that the cycle is turning negative for the sector. Europe’s selection of chipmakers and chip-equipment firms may find today tough going on read-across from that.

...And Misery Loves Ceconomy

German electronics retailer Ceconomy AG has had a rough year. A series of profit warnings has resulted in its shares dropping in excess of 70 percent and its chief executive quitting back in October in the face of investor anger. After the battering retail stocks took in the wake of U.K. online fashion retailer Asos Plc’s update this week, investors in the sector will be crying out for something positive. Ceconomy doesn’t appear to have delivered. It eliminated its dividend, sees a ``year of transition’’ ahead and expects earnings to decline, so very little positive for retail watchers to grasp here.

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