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Cabinet summoned to Westminster as draft Brexit deal reached - EMEA Brief 14 Nov

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  • Theresa May faces a crucial cabinet meeting today at 14:00 UK time as she seeks support from senior ministers for her draft Brexit deal between the EU and the UK.
  • In light of the news of a potential Brexit deal being agreed, the pound rose 0.12% against the dollar on Wednesday morning and 0.16% against the Euro.
  • The US equity markets generally ended down as Wall Street fails to claw-back earlier losses from the lackluster performance of the energy sector. The S&P slipped 0.2%, it's fourth straight decline, the Dow fell by around 100 points and the Nasdaq closed flat.
  • US crude has dipped 7% settling at $55.69, a one year low, which has sent the energy market into a sell-off mode as OPEC and other oil producers have been increasing output as well as exemptions granted by the US on buying oil from Iran. However, we may see a correction soon as producers will meet next month to discuss the supply of oil.
  • Overall a mixed session for Asian stocks on Wednesday after varied results on China's economy and the oil drop. Shanghai Composite Index fell 0.9%, the Hang Seng dropped 0.8% and Japan's Tropix Index saw an increase of 0.2%.
  • Interesting news surrounding digital money, as the IMF indicates that central banks should consider issuing digital currencies. Head of the IMF Christine Lagarde said whilst speaking in Singapore "I believe we should consider the possibility to issue digital currency. There may be a role for the state to supply money to the digital economy".

Asian overnight: A mixed session overnight saw gains in Japan counteracted by weakness across most of the other major markets. The Australian ASX 200 was the notable under-performer, falling over 1% thanks to substantial weakness across the energy sector in the wake of the crude decline. That decline was partly down to the OPEC monthly report which saw markets shift focus onto the oversupply that seems likely in 2019. Data-wise, we have seen a whole host of economic releases, with Japan falling into negative growth for Q3 (-0.3%), while Chinese releases fared somewhat better given the rise in fixed asset investment and industrial production. 

UK, US and Europe: The main focus of today is likely to be on Brexit concerns, given yesterday’s breakthrough in talks. The final agreement is far from assured a safe passage, and thus the market reaction is likely to be heavily impacted by the ability to pass through Parliament. With that in mind, expect sterling volatility, with any signals of how the votes might go likely to play a major role. Also watch out for the latest inflation data, with UK CPI expected to rise to 2.5% today. In mainland Europe, markets will be keenly following the latest eurozone Q3 GDP number, alongside the industrial production figure. Finally, the US follows on from the UK with the inflation theme, where CPI is expected to rise to a nine-month high.  

The news of a potential Brexit agreement will have eased investors fears over a no-deal scenario, we've already seen an increase in the value of sterling due to the announcement. The deal addresses the Northern Ireland backstop, one of the most highly contentious issues which was creating a dead-lock in getting a deal over the line. It is believed that the draft deal aims to avoid a hard border with Northern Ireland by keeping the UK aligned with the EU customs union for some time. However, this has caused many Brexiteer's and the DUP, who have a confidence and supply agreement with the Tories, to question exactly how this proposal will work in practice. Interesting to see trader sentiment today in the UK and European markets as a volatile session is expected, will we see the markets go in the green or is it still too early to get behind this Brexit deal?

Not everyone was pleased with the announcement of this potential Brexit deal. Jacob Rees-Mogg announced he could withdraw his backing for Theresa May as "She hasn't so much as stuck a deal as surrendered to Brussels and given in to them on everything that they want and tried to frustrate Brexit". Fellow Brexiteer Boris Johnson claimed that "this is just about as bad as it could possibly be", if the leaked reports about the deal are true. Lookout for breaking news after the crunch cabinet meeting today, which is scheduled to go ahead at 14:00 UK time.

Economic calendar - key events and forecast (times in GMT)

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Source: Daily FX Economic Calendar

9.30am – UK CPI (October): prices to rise 0.2% MoM and 2.6% YoY from 0.1% and 2.4% respectively. Core CPI to be 2.2% from 1.9% YoY. Market to watch: GBP crosses

10am – eurozone GDP (Q3, 2nd estimate): QoQ growth to be 0.2% from 0.4%. Market to watch: EUR crosses

1.30pm – US CPI (October): prices to rise 0.3% MoM and 2.4% YoY, from 0.1% and 2.3% respectively. Core CPI to rise 0.2% MoM from 0.1%. Market to watch: USD crosses

Corporate News, Upgrades and Downgrades

  • Numerous reports suggesting that airline Flybe has been put up for sale after issuing a dramatic profit warning less than one month ago, the company's shares have fallen nearly 75% since September.
  • SSE has announced losses of £246.4m for the six months to the 30th of September, the chairman of the British energy firm said "This is disappointing and regrettable, but important changes are now being made to the way SSE manages its exposure to energy commodities".
  • WeWork has reported that Japanese technology group Softbank has invested a further $3bn into the office space provider.
  • Smiths Group plans to separate out its underperforming medical division from the rest of the firm/ Q1 trading revenue fell 1%, thanks to good growth at the energy division that offset poorer performance at its medical unit. Underlying growth for the full-year is still expected to match last year’s. 
  • Workspace Group suffered an 18% fall in first-half profit, to £101.6 million, although net rental income rose 17% to £35.4 million. The dividend was raised by 20% to 10.61p. 
  • British Land said that first half underlying profit fell 14.6% to £198 million, and added that the retail market remained challenging.

Auto Trader upgraded to buy at Peel Hunt
Burberry upgraded to add at AlphaValue
Tullow upgraded to hold at Panmure Gordon

BB Biotech downgraded to hold at Baader Helvea
ThyssenKrupp downgraded to hold at HSBC
Rio Tinto downgraded to sell at Liberu

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