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GBP Currency Gets A Lift From A Non-Binding ECJ Opinion On Article 50

Notes/Observations

  • European Court of justice (ECJ) advisers in a non-binding decision stated that the UK could pull Article 50 unilaterally (Insight: Ruling theoretically meant Britain could cancel Brexit negotiations and stay in EU without asking any of other Member States)
  • UK Nov Construction PMI beats expectations for its 8th month of expansion (53.4 v 52.5e)
  • South Africa moves out of recession as Q3 GDP handily beats expectations

Asia:

  • RBA left the Cash Rate Target unchanged at 1.50% unchanged (as expected) for its : 24th straight pause in the current easing cycle: Reiterated stance that low rates were supporting the economy; progress on unemployment and inflation to be gradual; Saw GDP growth averaging ~3.5% over the coming years

Europe:

  • Italy budget deficit of 2% said to be not low enough for EU Commission
  • Italy PM Conte: NOT working on budget with a deficit below 2% (Note: earlier reports circulated that Italy PM Conte was preparing for 2019 budget deficit between 1.9-2.0%)
  • Eurogroup to support EU commission view on Italy’s budget; Eurozone Govts to recommend Italy to comply with fiscal rules
  • EU Official stated that Germany abandoned its ambitious plans for EU digital tax; would present draft plan to impose a 3% tax on revenues generated by ad sales in the digital economy
  • UK Parliamentary Speaker stated that there was arguable case that UK govt committed contempt of parliament over motion for Brexit legal advice
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Americas:

  • Fed Chair Powell made some unscheduled comments from Yellen award which affirmed call for patience on further rate hikes, economy could shift mid-2019; Productivity picked up but not clear if trend was sustained
  • Fed’s Kaplan (dove, non-voter): currently focused on not being pre-determined about future rate path. Highly possible US economy looked very differently by mid-2019; wanted to be patient and see how things unfolded
  • White House econ adviser Kudlow: cautiously optimistic about reaching US-China deal; Clarifies 90-day timetable for completing US-China trade talks begins Jan 1st (implies deadline for trade deal will be Apr 1st). Did not have a specific agreement on China auto tariffs but expect auto tariffs to drop to zero upon agreement

Energy:

  • OPEC key members reportedly determined to agree on new output deal despite Qatar’s withdrawal from the group

Macro

  • (UK) United Kingdom: A non-binding opinion from the Advocate General of the EU Court of Justice concluded that the U.K. should be allowed to reverse its Article 50 notice. U.K. government officials had asked the court to delay a ruling so as not to interfere with the internal decision making, while EU officials actually would prefer the court to rule against the ability of countries to unilaterally reverse Article 50 notices once they have triggered, arguing that this could open the exit procedure to the risk of abuse by government’s trying to exert political pressure. The court ruling is still outstanding, but while there is no legal obligation to follow the assessment of the legal opinion, it usually does. It opens up a whole can of worms. If a member state can invoke article 50 then simply withdraw it unilaterally then Italy (and every other disgruntled member) what is stopping them using it as a threat to extract better terms?
  • (IT) Italy: Eurogroup Finance Ministers yesterday issued a statement on public finances that identify the “urgent need to rebuild fiscal buffers, notably in Member States that have not reached their Medium-Term Budget Objectives. It also backs that Commission’s assessment that Italy’s budget draft constitutes a “particularly serious non-compliance” with the fiscal rules and recommends “Italy to take the necessary measures to be compliant with the SGP (Stability and Growth Pact”. Italian press reports this morning suggest that both sides aim to come to an agreement by December 19, with Italian officials reportedly open to cut the deficit target to 2%, which is still likely to be an overshoot of the government’s projections that are obviously based on vastly optimistic growth assumptions.

SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM

Equities

  • Indices [Stoxx600 -0.41% at 359.70, FTSE -0.44% at 7,031.79, DAX -0.71% at 11,384.51, CAC-40 -0.66% at 5,020.71, IBEX-35 -0.74% at 9,109.00, FTSE MIB -0.41% at 19,541.50, SMI -0.22% at 9,084.50, S&P 500 Futures -0.48%]
  • Market Focal Points/Key Themes: European Indices trade lower across the board fading some of the sharp trade related gains seen yesterday, following declines in Asia and lower US Index futures. Macro developments in Italy and the UK continue to take dominate headlines. On the corpor