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:

Flexible Red Lines

The red lines set down by the U.K. government in the Brexit negotiations appear ever more to have been drawn in pencil rather than pen. Speaking in a TV interview on Sunday, Brexit Secretary Dominic Raab signaled the U.K. may be willing to show some flexibility on the “backstop,” a clause designed to prevent a hard border with Ireland in the event of a no-deal scenario and which the U.K. wants for a limited period but the European Union doesn’t. Raab said that while the arrangement “could be time-limited, there could be another mechanism.” That follows a Friday report that the U.K. is considering dropping its requirement that the backstop’s duration be strictly limited to break the deadlock in the talks. Prepare for another week of incremental shifts in position and staunch rejections of those shifts, all of which will likely make for another choppy week for the pound and for U.K. domestic stocks.

Italian Relief?

A ratings downgrade may not seem the ideal salve for the recent bruising Italian markets have taken, but it will be fascinating to see if Moody’s cut to Italy’s rating turns out to be just that. A downgrade to the lowest investment grade isn’t encouraging but should at least remove immediate concerns that the country was hurtling toward junk territory. The current rating may prove to be priced-in to bond markets and spark a rally, which could in turn boost the country’s banking sector. But be wary, because with an official EU response to the populist government’s budget plans due imminently, any brightening in sentiment could prove short-lived if noises from the European side prove particularly harsh.

Saudi Tensions

Officials in the U.S. and Europe expressed skepticism over the shifting Saudi explanation for what happened to journalists Jamal Khashoggi, promising that the tensions involving his death the Saudi consulate in Istanbul will remain near the top of the agenda and influencing the oil price and defense stocks. France has called for more information, and Germany has put arm sales to Saudi on hold. In the U.S. Congress, lawmakers on both sides of the aisle said they suspected there was knowledge at the highest echelons of the Saudi regime, though the Trump administration sought to stress the vital economic importance of its relationship with the kingdom.

Magneti Marelli

Fiat Chrysler Automobiles NV agreed to offload its Magneti Marelli high-tech car parts division to Calsonic Kansei in a 6.2 billion-euro ($7.1 billion) deal. Watch for reaction to the price the carmaker has received for the division following the recent hit the auto sector has taken from trade uncertainty and a slew of profit warnings. The Magneti Marelli sale comes soon after truck- and train-braking systems manufacturer Knorr-Bremse AG floated in Germany and showed some solid resilience in comparison to other recent IPOs in the autos sector, notably the disappointment in the early days of a listed Aston Martin Lagonda Global Holdings Plc.

Budget Airlines

Ryanair Holdings Plc had already flagged its weaker earnings report but it will still be worth seeing if the first decline in first-half earnings for the Irish carrier in five years will further sap sentiment in an already-battered airlines sector. Rising fuel prices, strikes by European air traffic controllers and disruption from union disputes all hit Ryanair’s numbers and the group said it will pause plans for future share buybacks owing to Brexit uncertainty.

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