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:

Earnings Ahoy!

The European earnings season steps up a gear today, with plenty of large-cap bellwethers updating on trading. Nestle SA and Unilever for the food industry, Novartis AG following yesterday’s report from domestic pharma peer Roche AG, Germany’s SAP SE for the software industry and Pernod Ricard SA both for spirits consumption in Europe and also the key Asian market. Overall, it should start to help build a picture for each of these industries of how positive or negative this reporting period promises to be.

Fed View

Minutes and notes from the Fed’s latest monetary policy meeting suggested that, longer-term, interest rates may need to be higher than what would usually be considered neutral for the economy, as growth persists. The dollar strengthened and the yield on 10-year U.S. government bonds edged closer to 3.16 percent. There was minimal reaction in U.S. equities, with the S&P 500 ending the session little changed, but U.S. futures slipped in Asian trading on the more hawkish tone. The rise in Treasury yields could well weigh on the European session, though FTSE 100 futures are pointing slightly higher on a weaker pound.

U.S. Trade Scrutiny

The U.S. spared China from its list of currency manipulators, albeit served notice that it will closely watch the yuan after its recent slide. At the same time, the U.S. Treasury dialed up its criticism of the state-driven economic model employed in China, indicating any tensions between the two countries are not going away any time soon. Add that to the tensions the U.S. and the European Union are experiencing. U.S. Commerce Secretary Wilbur Ross accused the EU of dragging its feet on market-opening pledges after European Trade Commissioner Cecilia Malmstrom said the onus is on the U.S. to come up with proposals to cut tariffs on industrial goods.

Brexit Back-and-Forth

Don’t for a second start to imagine the back-and-forth of Brexit negotiations is going reach a definitive conclusion any time soon. U.K. Prime Minister Theresa May is said to be weighing a plan to remain tied to EU rules for longer in an attempt to break the deadlock. Such a move could have a significant impact on her standing at home, with euroskeptics within her Conservative Party likely to see the move as delaying Britain’s exit from the trading bloc. Keep a close eye on the pound again today.

Don’t Forget Italy

The European Commission has yet to officially respond to the budget Italy’s populist government submitted earlier in the week and the uncertainty this brings has continued to move the nation’s sovereign bonds. EU Commissioner Guenther Oettinger said it’s “very likely” the plans will be rejected, and Italy moved on Wednesday to buy back inflation-linked bonds, taking advantage of a period of calm before the arrival of two potential credit rating decisions and the EU’s response to the budget. Like the trade concerns, turmoil in Italian assets isn’t likely to dissipate in the near future.

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