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Brexit: European leaders approve withdrawal agreement - EMEA Brief 26 Nov

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  • May will start her two-week campaign to sell her historic Brexit deal to MPs as EU leaders have agreed on the UK's Brexit deal during the summit held in Brussels over the weekend, outlining it is "the best and only deal possible".
  • European Commission President Jean-Claude Juncker explained that anyone who thinks that the EU will offer improved terms if MPs reject the deal will be left "disappointed" - MPs are expected to vote on the 12th of December.
  • Asian equity markets had a mixed session on Monday afternoon as the energy sector declined due plunging oil prices. The Hang Seng index rose by 1.69%, followed by the Shanghai composite rising 0.29% and the ASX 200 which fell 0.86% - with the energy sub index down by 2.71%.
  • Oil prices managed to reverse some losses after a near 8% drop in the previous "Black Friday" session, WTI crude futures were up 1% followed by Brent futures rising 1.6% to $59.71, although still below $60 per barrel and near Friday's low of $58.41.
  • The deadly California wildfire, which started on the 8th of November, is now said to be 100% contained after destroying almost 14,000 homes and killing 85 people, with hundreds still missing.
  • Tension between Russia and Ukraine escalates as Russia has opened fire and seized three Ukrainian naval vessels, injuring several crew members on-board. The countries are blaming each other for the incident, it's expected that Ukrainian MPs will vote on whether to declare martial law today.
  • Bitcoin's sharp decline got worse over the weekend as the cryptocurrency entered into its largest sell-off since 2014 which is "really testing the faith of a few key players", the price dropped as low as $3,475 on Sunday.

Asian overnight: A mixed Asian session saw a strong surge for Japanese and Hong Kong markets counteracted by weakness in China and Australia. That comes despite the careful optimism surrounding the upcoming trade talks between the US and China at the G20 summit. The weekend saw the EU27 ratify the Brexit proposal, in a move that should have pushed the pound higher. However, this barely happened, after the likeliness of parliamentary rejection was raised by Emmanuel Macron who stated that he would ensure the UK is forced into the backstop indefinitely unless his fishing related demands are met. Data-wise, we saw the New Zealand retail sales figures fall short of market expectations, with the core figure falling to the lowest level since 2016. We also saw Japanese manufacturing PMI fall to 51.8 from 52.9.

UK, US and Europe: Theresa May will face immense pressure as she embarks on her Brexit battle to get her deal agreed in Westminster after the 27 leaders of the European Union approved the deal in just 38 minutes at the summit in Brussels. A recent report conducted by the National Institute o Economic and Social Research will not help her cause as it claimed that Mrs May's Brexit agreement will leave the UK £100 billion a year worse of by 2030. The potential Brexit deal has lead to many MPs venting their frustration publicly, including some of her fellow Tory "remainers". One of these is Sarah Wollaston, a conservative MP, as she explained that "I just don't think it's remotely possible that this deal would pass the commons", although she believes it's unlikely the UK will leave without a deal as MPs are "very opposed" to leaving without any deal at all.

Having said this, EU leaders have warned British MPs about the risks of voting the Brexit deal down in a bid to aid the Prime Minister in getting the agreement through parliament. Jean-Claude Juncker reflected on an overall "sad day" but told reporters "I'm inviting those who have to ratify this deal in the House of Commons to take this into consideration: this is the best deal possible for Britain, this is the best deal possible for Europe, this is the only deal possible". Interesting to see the market reaction in the main session to the news of EU leaders approving the Brexit deal over the weekend.

Looking ahead, much of the focus remains on Europe, with the German Ifo business climate survey providing the one major economic release of the day. Meanwhile, appearances from Draghi and Carney later in the day should ensure the EUR and GBP volatility is maintained in the wake of the weekend’s Brexit vote.

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

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Source: Daily FX Economic Calendar

9am – German IFO (November): business climate index to rise to 103.2 from 102.8. Markets to watch: EUR crosses
1.30pm – Chicago Fed nat’l activity index (October): expected to rise to 0.4 from 0.1. Markets to watch: US indices, USD crosses

Corporate News, Upgrades and Downgrades

  • Rio Tinto has sold its controlling stake in a Namibia uranium mine to a Chinese firm, fro up to $106.5 million. 
  • AstraZeneca said that the US FDA had granted an orphan drug designation for its autoimmune disease treatment. 
  • General Motors has announced plans to close it's Canadian plant which employs 2,200 workers.
  • The board of Mitsubishi Motors are set to meet today to discuss the removal of Carlos Ghosn from his role as chairman due to his arrest for alleged financial misconduct.
  • Vecture Group will incur a £40 million loss after it's astma drug trial failed, the chief medical officer said "Although we are disappointed that these results missed statistical significant, I remain confident in our proprietary technology and development capabilities".

Allianz upgraded to overweight at Barclays
Panalpina upgraded to buy at Jefferies
Saipem upgraded to buy at HSBC
Wood upgraded to buy at HSBC

Altice Europe downgraded to outperform at RBC
Pennon downgraded to sector perform at RBC
Severn Trent downgraded to outperform at RBC

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