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European markets will assess the effect of the trade controversies aggravation between the United States and China


The European market participants will continue to assess the effect on the world economy and Europe itself of the new reciprocal customs duties of the United States and China.
New American duties on Chinese imports worth more than $200 billion shall come into force since January 24. Currently, these duties amount to 10%, and since January 1 they will be 25%. In response to American measures China will also impose import duties since September 24 on 5.2 thousand American items worth $60 billion.
Market participants expect that escalation of trade conflict between the United States and China could lead to a slump in the world oil prices due to decrease in Chinese demand for oil. However, expectations regarding reduction of oil supplies from Iran, which suffers from American economic sanctions, may somehow level such slump.
Besides, a question on possible introduction of 25% duties on imports of European cars from the United States remains open. As the conflict between the United States and China increases, the prospects for introduction of these trade measures against European cars are becoming more and more daunting.
However, indicators of the eurozone economy also give rise to concerns. Thus, according to IFO Economic Research Institute forecast, the region’s GDP growth in 2018 may reach 2%. Forecast for economic growth in the eurozone was aggravated because previously GDP growth had been expected at the rate of 2.3% as of the current year-end.


The current year-end inflation forecast amounts to 1.2%. According to the results of Q3 and Q4, the figure is expected to reach 1.2%, and in Q1 2019 - 1.3%.
The situation with Brexit will go on. Despite some progress in discussing the conditions of the United Kingdom exit from the European Union, many issues still remain unresolved.
Ivan Marchena, analyst, Libertex

Europe’s Markets to Be Headed Northwards As European Car Tariff Fears Become Less Intense
European investors feel quite upbeat now with the milder-than-feared scenario expected to play
out as far as the US-China trade conflict is concerned.
Investors were somewhat soothed, as US regulators have so far gone ahead with only 10-percent
tax on the Chinese imports, with 25-percent hike to become effective no earlier than January 1,
2019. China has mirrored the move.
The current situation also offers support to the European automotive sector equities, as Europe’s
car makers had feared of 25-percent tariffs to potentially be slapped on their US exports, but later
on they became less unnerved by the prospects.
Meanwhile, the optimism has been dampened by the fact that China and the US dropped the
talks around their trade war for the time being. And with the lay of the land like that, the new
tariffs might kick in even before January 1.
With the UK’s indices on the upward trajectory, the British pound has been even more downbeat
on top of its being continually weaker due to the enduring Brexit disagreements between the UK
and Brussels, as the former believes that the EU doesn’t actually consider its stand regarding the
deal’s conditions and is not ready to compromise. Moreover, UK insists that the EU’s Brexit-
related proposals are unacceptable.
On the positive side, things are looking up for France, as the oil giant Total has made a major
offshore UK gas discovery.
Other positive news is that Spain is seeing an economic upturn, with the country’s government
ready to make a voluntary early repayment of €3 billion towards its banking system stabilization
loan from the ESM. This is the ninth time Spain will make a voluntary early repayment of its
loan. Following the repayment, Spain’s outstanding debt to the ESM will stand at €23.7 billion.
Ivan Marchena, Libertex Analyst

European Markets Might Be Up As the EU Mends Its Trade Relationship with China


Europe’s markets might be up slightly after the Federal Reserve had raised interest rates up by 0.25 percentage points in a no-surprise move. Another thing that also came as no surprise was that the regulator foresees another hike before the end of the year. The Fed’s lifting the rate marked the end of the era of “accommodative” monetary policy.


What’s really important for the EU investors is that the Federal Reserve understands that the US trade wars are likely to hurt markets and to undermine the investors’ trust. Now the non-US traders expect that the US would do something to address its trade conflicts escalated around the globe. Specifically, after the US President Donald Trump and Japan Foreign Minister Shinzo Abe agreed to negotiate a new trade deal between the two countries as part of their trade discussions, the US might go ahead and set off discussions with the EU.


Still, stock markets are somewhat uneasy due to the US’ dropping its talks with China, as traders fear that the US might levy a tax on European car imports. European leaders had had some rounds of discussions with the Chinese officials, and they vowed to support free trade. The EU is set to defend the multilateral trading system and rejects sanctions and levies as external policy tools.


Importantly, ties between China and Germany might be deepened and enter a new phase, as the two countries will work together towards developing and reforming the WTO, and protecting the developing countries’ trade interests.


Another booster for the EU stock markets is oil with its prices marching upward. Despite some fluctuations, oil prices have neared multiyear highs, as traders apprehend the looming Iranian oil supply cuts, which might happen on the back of the US sanctions targeting Iran and hurting its oil exports. And a new round of sanctions is scheduled to go into effect in November, which will not be the end of the story, with Iran likely to be slapped with new restrictive action from the US later on. The US wants Iran's oil exports to drop to zero eventually.
Ivan Marchena, https://app.libertex.org/

European Markets to Be Volatile Due to Italy Budget Turmoil


In the offing, European markets are to be quite volatile on the back of Italy’s budget crisis. Traders will be watchful awaiting the EU response following its clash with the country over budget.


Most likely, Brussels will try to put pressure on the Italian government so that it revises particular aspects of the budget that has earlier been approved amid challenges, with the budget deficit set at 2.4% of GDP though previously it was planned to be set it at 2% or less. Investors will also be on the lookout for how international rating agency will react to the budget deficit collision.
And then, European investors will take cue from the US’ mending its trade relationships globally, with the market to be bolstered by the United States and Canada finally reaching a new trade deal.
Meanwhile, the growing oil prices will be the near-term booster for Europe’s markets. The oil’s appreciation is driven by traders’ expectations that Iran oil supply will shrink in the wake of the new US sanctions to be imposed in November this year. Moreover, the US President Donald Trump threatens to slap new wave of sanctions on Iran after November and so bring the country’s oil exports to zero. Even now, China and India are cutting their imports of Iranian oil.
In the meantime, the EU has unveiled the ‘Special Purpose Vehicle’ (SPV) to facilitate legitimate financial transactions with Iran and allow European companies to continue trade with Iran.
Ivan Marchena, Libertex Analyst

European Markets Might Rebound Slightly More Upbeat On Positive News About Italy’s Budget


In the days to come, Europe’s markets will be driven by hopes over Italy-EU budget resolution and the globally stronger oil prices.
While previously traders became somewhat mopey due to Italy’s budget deficit topping their earlier expectations, but now the sentiment seems to have improved to some extent.
Traders expect that Italy’s government will act to cut the deficit. Now the Italian leaders’ coalition promises to negotiate a move to bring the deficit to 1.8% of GDP in 2021. And we’ll know very soon if the revised budget is palatable to the EU, with the investors awaiting the European Commission’s reaction.


All in all, Italy is one of the EU’s weak points. The country’s debt-to-GDP ratio is second worst in Europe after Greece. Italy’s national debt figure has come to be the highest one of all time at €2.3 trillion.


Meanwhile, Europe’s oil stock prices will be pushed upward by the oil prices that are marching aggressively towards the 2014 autumn’s highs; and they are likely to be further propelled higher due to the feared US-sanction-battered Iran’s oil supply cut.
Specifically, French oil giant Total has announced that it sees no way to resume its operations in Iran amid the massive risks due to the US sanctions.


Also, the EU is creating the Special Purpose Vehicle to bypass the US sanctions and enable financial transactions with Iran. So Europe is likely to remain able to continue trade with the sanction-beleaguered country.
Ivan Marchena, https://app.libertex.org

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The EU Markets Will Continue To Face Pressures From Low Oil Prices And Negative Global Stock Markets Dynamics




In the coming days, European markets will continue to be battered as stock markets have been headed south globally and lower oil prices.
On top of the globally dominating trade wars, the US Federal Reserve’s announcing the end of the ‘accommodative’ monetary policy era triggered much higher yield on the US Treasuries propelling it to the 2011 highs. And surely with the US Treasury bonds doing as great as that, the higher-risk assets are attracting less interest across markets.
Traders are awaiting a new Fed rate hike to occur soon, as the US regulator said rates would be raised four times before 2019. Most US central bankers believe that the rate will be increased three times over 2019 and will reach 2.875% at average.
The EU’s markets will also be under pressure from the globally downbeat oil prices. Despite the expected sanctions-battered Iran’s oil supply cuts’ being a powerful medium-term driver, the oil market has a bunch of negative new to digest. Specifically, the US considers some exemptions to be offered to particular oil importers concerning Iran crude exports sanctions to be imposed in November this year. Sanctions may be eased for countries that have made it clear that they are set to reduce their oil imports from the country.
Meanwhile, European investors have never stopped being worried about the Brexit prospects like that if the UK exits the EU without reaching the deal and so with a zero transition period that will hurt the Irish economy and financial system dramatically. Moreover, many British companies would like to move their business to Ireland after the Brexit.
On the bright side, France celebrates the S&P’s affirming the country’s credit rating at “AA”, outlook stable. S&P believes that the France’s unemployment rate will go gradually down from 9.1% in 2018 to 8.6% in 2021, with inflation at 2% this year and lower further on to reach 1.6% over 2019-2020.


Ivan Marchena, Libertex Analyst

The EU Stocks to be Headed South on Trade Spats and Political Collisions




European stocks are now under a certain pressure, as investors are wary about further European Central Bank’s monetary policy developments.
Traders expect that as Eurozone inflation rises, the regulator will continue to stick to the harsh monetary policy and will further raise rates. Investors share the fears of even greater global trade protectionism and financial market volatility that have been raised by ECB President Mario Draghi. Moreover, they are upset that the Quantitative Easing monthly net asset purchase will be halved to 15 billion euros in October and will be ended altogether by December 2018.
Another driver fuelling investors’ concerns is the lack of certainty about the US-China trade war prospects along with tenser relationship between Europe and Saudi Arabia. UK officials have begun drawing up a list of Saudi security and government officials who could potentially come under sanctions connected with the disappearance of famous dissident journalist Jamal Khashoggi, who has been missing since he entered the Saudi consulate in Istanbul. The US may come forward with similar sanctions. If this happens, Saudi Arabia global oil supply will be curbed dramatically, and so the oil prices will rise again.
Inside the Eurozone, investors never stopped being worried about the still unresolved and very important Brexit outcomes and conditions including how the Irish border fits into any Brexit deal.


Meanwhile, London and Brussels have little time left to agree a workable Brexit, as they need to reach the withdrawal agreement in November at latest. If they fail, the agreement will not be able to go through the ratification process by March 29, 2019 (the Brexit deadline), which could trigger the ‘hard’ Brexit that would cut off most UK ties with the EU including the agreements, arrangements and regulations it currently observes as a European Union member and cause uncertainty about the future relationship between the United Kingdom and the EU.
Ivan Marchena, Libertex Analyst

The EU Majors’ Financial Figures, Italy Budget Crisis and Brexit Will Remain the European Stock Market Highlights


In the days to come, the EU stock market traders will be on the watch for the EU’s major’s financial figures that are currently being announced as well as for the Italy budget crisis updates and Brexit news.


Investors expect that Brussels will probably ask Italy to revise the country’s budget for 2019 and will reject the current version of the budget with the deficit set at 2.4% of GDP. In the meantime, another focus of interest for traders is Brexit. With the looming Brexit deadline of March 29, 2019, the UK needs to strike the withdrawal deal in November at latest so that it could go through the ratification process in time and take effect by the Brexit date. The no-deal Brexit is to be the ‘hard’ Brexit feared by investors.


On the positive side, the European market majors have recently announced their financial results that appear to be quite strong, which will underpin the EU stocks dynamics in the offing.


A negative thing is that the EU market-watchers apprehend a new rate hike by the US Federal Reserve that seems to believe that it makes sense to further raise rates amid the country’s strong economy according to the Fed minutes from its September meeting.


And again on the negative side, the US-China trade war tensions have never eased. Though the US Department of the Treasury has so far declined to label China as currency manipulator, the Treasury report says that China, along with five other countries, has currency practices that require close attention.


As the US-China trade quandary remains unresolved, the EU investors are wary that European car imports into the Unites States might be hit with higher tariffs. Meanwhile, as the car tariff hike threat appears to be less acute, the EU’s new light motor vehicles sales grew by 2.5% with 11.95 million new cars sold from January to September 2018.
Ivan Marchena, Libertex Analyst

The European Markets Might Recover Somewhat Amid Globally Stronger Investment Environment


In the offing, the European stock indices might continue their growth, as the investment climate has become better globally.
Specifically, the financial scouts watching the European financial markets say that the traders feel upbeat because they anticipate the US-China trade war to be successfully resolved. Investors are now awaiting the meeting between the US President Donald Trump and China’s leader Xi Jinping that is planned to be held on October 29. The way how the China’s stock exchanges reacted was driven by the statements made by the governor of the People’s Bank of China (Xi Jinping). Should the meeting eventually happen, it will become the first rendezvous of the two leaders since the trade spat had exploded.
Furthermore, European investors expect that the Chinese government will offer support to the country’s business sector that is being hurt by the US-China trade contradictions. The governor of the People’s Bank of China has earlier announced to investors that they may remain appeased, as the regulator will undermine the country’s economy amid the current challenges.
On the negative side, the financial scouts are still wary about the Italy’s economic outlook, as the budget crisis faced has never been resolved. The European Commission is concerned about three things regarding the country’s budget, that is, how the national debt, the budget deficit and the economic growth will be managed. According to the EU regulations, a member country’s budget deficit may not be greater than 3% of its GDP. Meanwhile, Italy is the EU’s largest debtor after Greece with its debt-to-GDP ratio at 131.8%.
Another front burner issue for the EU is Brexit. Investors are hopeful that the UK will finally be able to reach the deal. Brussels and London need to work out the final Brexit agreement in November at latest so that the deal could go through the ratification process and become effective by the Brexit cutoff date. Should the withdrawal deal fail to be reached, this is likely to trigger the ‘hard’ Brexit. And that’s what investors actually apprehend.
Ivan Marchena, Libertex Analyst