Stocks are rallying into the close and Italian banks are outperforming the market on the news that Rome and Brussels have stuck a deal in relation to the budget.

Europe

The two sides have been at loggerheads for months, and now it seems that a budget deficit of 2.04% is acceptable to the Italian government and the EU. There were a lot of fears that the political spat could have triggered another round of the eurozone debt crisis, and those worries have since evaporated.

GlaxoSmithKline shares are higher today after the company announced a deal with Pfizer, whereby both companies would merge their healthcare divisions, with the medium-term view of selling it on. Glaxo will wind up with a 68% controlling stake in the new group which would have a total revenue of $12.7 billion. The firms anticipates to save $750 million by 2022, and disinvestments are expected to be in the region of $1.3 billion – which would exceed the costs of integration. Earlier this year, we heard from Jamie Dimon of JP Morgan, Warren Buffett and Amazon’s Jeff Bezos, and the group announced plans to launch a new healthcare initiative, with the view to lowering health care costs. No doubt the announcement from Glaxo and Pfizer is a reaction to the potential changes to the sector.

Royal Mail shares have reached an all-time low on the back of the underwhelming update from Fedex last night. The US lowered its full-year outlook and cautioned that ‘ongoing deceleration in global trade’ is likely to impact the business. Fedex is seen ad a barometer for global demand, and the disappointing update soured sentiment in relation to Royal Mail.

Interserve announced it will merge its citizen’s services division with its support services division in order to simplify the structure of the business. The group has been struggling this year, and it announce a profit warning in October. Today’s update is seen as a sign the firm is still under pressure.

BP confirmed it plans to sell $3 billion of onshore US assets to help fund it acquisition of BHP Billiton’s shale assets. The oil price has slumped in the past 10 weeks, and no doubt its cash flow position has been reduced, and that is likely to be the reason behind the proposed asset sale.

US

The major indices are higher as traders square up their books ahead of the Federal Reserve announcement later today. The update has bas been long awaited and it could set the tone for the rest of the year and into 2019. 

The Fed will announce the latest interest rate decision at 7pm (UK time) and there is a 66% chance of a rate hike according to FedWatch. The same tool, isn’t factoring in any rate hikes for 2019. The US central bank will clarify their decision by holding a press conference at 7:30pm (UK time). The Fed have boxed themselves into a corner, and if they don’t hike this evening it would project a very pessimistic image. We are likely to see a dovish hike, whereby the interest rate is upped, but the outlook is more tempered.

Last night, Fedex revealed a solid set of quarterly figures, but the weaker outlook caught trader’s attention. Adjusted earnings per share were $4.03, which exceeded the $3.94 forecast, and quarterly revenue on a year-on-year basis ticked up 9.2%, which narrowly topped forecasts. The group now predicts full-year EPS of between $15.50 and $16.60, and while the previous guidance was between $17.20 and $17.80.  The stock has been broadly pushing lower throughout 2018, and if the negative move continues it might target $175.00.

Eli Lilly shares are in demand after the company issued an upbeat outlook. The drug maker predicts that annual EPS will be between $5.90 and $6, while equity analysts were expecting $5.82. The full-year revenue forecast was above market estimates too, and the quarterly dividend was raised by 15%. The stock has been in an upward trend since February, and if it holds above the $100 mark, the upward move might last.

FX

GBP/USD is firmer thanks to a softer US dollar. Headline CPI in the UK cooled to 2.3% in November, from 2.4% in October. The core CPI reading slipped to 1.8%, from 1.9%, and that is a little concerning as it shows that actual demand has dipped. Seeing as UK average earnings are growing at a rate of 3.3% - a 10 year high, it is an added bonus the cost of living is cooling. Both the UK and the EU are stepping up their precautions for a no-deal Brexit scenario. It appears that neither side are willing to back down, and that is making some traders nervous.

EUR/USD was helped on reports the EU and the Italian government have reached an agreement over the budget. The administration is Rome was originally seeking to run a budget deficit of 2.4% in 2019, and now it is expected to be 2.04%. This issue had the potential to trigger another round of the eurozone debt crisis, and now it appears the situation has been defused.

General US dollar weakness drove USD/CAD lower. Canada posted disappointing inflation figures, but the weakness in the greenback took hold. Headline Canadian CPI tumbled from 2.4% in October to 1.7% in November, falling below the 1.8% forecast.

Commodities

Gold reached a fresh five month high due to the slide in the US dollar. The recent weakness in the US dollar has helped the gold market, as the inverse relationship between the two markets has been strong. The metal has been broadly moving higher since mid-August, and if the upward move continues it might target the $1,265 area.

Oil bounced back after enduring a major decline yesterday. Volatility jumped after the energy information administration report showed that oil inventories fell by 497,000 barrels, while the consensus estimate was for a 2.36 million barrel decline.

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