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:

Slow Brexit

It’s been hard, it’s been soft. Now, U.K. Prime Minister Theresa May appears to be gambling that the kind of Brexit that will break the deadlock in talks with the European Union is a slow one. Both sides now believe there is merit in keeping the U.K. inside the full EU membership rules for longer after its formal exit, to provide more time to resolve the biggest sticking points. The move is likely to see resistance from euroskeptic Conservative Party members, but pointing to a longer transition would likely boost the pound. FTSE 100 futures are a touch higher on Friday, buoyed in part by sterling weakening further.

Slowing China

Chinese economic growth slowed more than anticipated in the third quarter, with industrial output worse than expected and downward pressure on growth becoming greater, according to the country’s statistics bureau. In addition, China and Europe escalated their WTO challenge to the metals tariffs imposed by the U.S., so trade tensions have opened a new front. And Chinese officials moved to shore up confidence in the battered and bruised local stock market, while stopping short of a market rescue. Potentially a bleak picture for miners, in particular.

‘Bad, Bad Stuff’

U.S. Treasury Secretary Steven Mnuchin pulled out of an upcoming Saudi Arabia investment conference, the latest in a wave of people and companies canceling amid the reverberations surrounding the disappearance of journalist Jamal Khashoggi. President Donald Trump told reporters it “certainly looks” like Khashoggi is dead and warned of “very severe” consequences if that proves the case. All in all, nothing is likely to soothe tensions between the U.S. and Saudi Arabia, so keep watching oil and European defense stocks. “I mean, it’s bad, bad stuff,” Trump said. “But we’ll see what happens.”

Italy’s Budget

There’s no formal rejection of Italy’s budget plans yet but the signs are not great. Several EU leaders attacked the budget on Thursday as Italian Prime Minister Giuseppe Conte failed to convince his peers in the bloc of the virtues of a higher deficit target than had been anticipated. Two EU Commissioners said the planned budget deviation was “unprecedented” in a letter. Italy’s bonds sank on Thursday and the euro slipped, so it will be once more worth keeping a close eye on the FTSE MIB and particularly the banking sector.

Mixed Signals

French tiremaker Michelin warned of falling sales in Europe and China in the second half of this year, news that sent shares in its U.S. peers spiraling. It said new emissions-testing standards had sapped European deliveries and that China’s auto market was slumping. However, rival Pirelli & C. SpA later said demand for high-end tires in China is holding up, countering Michelin’s warning. Watch other auto-parts suppliers and tire producers when Europe opens for which of the two signals is taken to heart.

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