Agreement on Irish Border Paves the Way to a Stronger Pound

European stock markets jumped higher as the dollar strengthened after the Senate passed the U.S. tax reform. The DAX was up 1.33% in mid-day trade, the FTSE 100 up 0.45% and the Euro Stoxx 50, after a mixed session in Asia, where Nikkei and ASX 200 closed with losses, as the focus shifted to the U.S.-Russia probe. Hang Seng and CSI 300 outperformed and closed with gains of 0.22% and 0.52%, which also look modest though in comparison to the rise in European markets. U.S. stock futures are also sharply higher, while oil prices retreated as WTI is trading at USD 57.92 per barrel.

Sentiment in Europe edged lower for the December preliminary read. The Eurozone Sentix Investor Sentiment fell back to 51.1 in December, from 34.0 in the previous month. The dip was more pronounced than anticipated, although with several institutions warning against an overly buoyant mood and an underpricing of risks in markets, a more cautious assessment may be welcome.

Brexit Concerns Hang on Irish Border

Irish media reports compromise on Irish border issue ahead of May-Juncker meeting. After officials already reported progress on the financial settlement, Ireland’s RTE this morning cited a draft text as suggesting the U.K. might concede that there will be “no divergences of the rules covering the EU single market and customs union on the island for Ireland post Brexit”, which could pave the way for a deal the Irish border, which had emerged as a major stumbling block for an early agreement on future trade and transition talks. If confirmed this could pave the way for EU heads of states to agree to talks at next week’s summit.  The news gave a boost to the GBP/USD.

Eurozone PPI inflation fell back to 2.5% year over year in October, while the September reading was revised down to 2.8% year over year from 2.9% year over year reported initially. Similar to developments in headline inflation, the deceleration in the PPI rate was mainly due to base effects from energy prices, which rose 3.1% year over year, after 4.3% year over year in the previous month. Excluding energy PPI rose 2.3% year over year, after 2.2% year over year in September. More signs then that underlying inflation pressures are slowly ticking higher.

UK November construction PMI came in much stronger than expected, climbing to a 53.1 headline reading, recovering after 50.8 in October, and continuing the improve after the dive to a 48.1 reading in September, which was the worst readings since July 2016. The survey shows the construction sector to be back in expansions, which fits with the overriding impression from anecdotal evidence of such. The data follows the much stronger than forecast November manufacturing PMI, which was released on Friday, though investors will be wary as a similar above-forecast strength in the manufacturing and construction PMI readings in October were followed by a less encouraging services PMI outcome.