European stocks traded lower Thursday, although volumes were low owing to the U.S. Thanksgiving holiday, as investors took a cautious stance ahead of a key weekend summit on Brexit and the ongoing budget standoff between Rome and Brussels.
However, news that British and EU negotiators had reached an agreement on the draft text of a deal that will both establish Britain's EU exit procedures and provide the framework for future trade negotiations that will be put to EU leaders Sunday provided solid support for regional currencies in mid-morning trade.
The pound was marked 0.8% higher against the U.S. dollar at 1.2865, while the euro jumped 0.1% to 1.1405, following a release of the draft text agreement, which stated that both sides "envisage having a trading relationship on goods that is as close as possible, with a view to facilitating the ease of legitimate trade."
U.K. Prime Minister Theresa May said late Wednesday that she will travel to Brussels Saturday in order to finalize the agreement in order to clear up some "remaining issues which we have discussed".
However, the unexpected 11th-hour meeting has raised concerns that May's deal isn't getting the support it needs in Brussels and could fail at the final hurdle if the last-minute changes aren't accepted by leaders such as Germany's Angela Merkel and France's Emmanuel Macron.
The Brexit uncertainty was compounded by moves from the European Commission late yesterday to open a so-called "excessive deficit procedure" against Italy for what it calls "a particularly serious case of non-compliance" with EU budget rules.
Italy wants to add billions to its already staggering debt pile in order to stoke growth and reduce unemployment in the region's third-largest economy with a budget that would increase its deficit to 2.4% of GDP. The EU, however, says Italy needs to both reduce it budget deficit, and its broader debt-to-GDP ratio, in order to ensure financial stability in the bloc.
European markets reflected concern over both developments Thursday, with the Stoxx 600, the broadest measure of regional share prices, falling 0.32% by mid-day in Frankfurt, lead to the downside by a 0.6% slide for Italy's benchmark FTSE MIB index and a 0.55% pullback for the DAX performance index in Germany.
Deutsche Bank (DB) shares were a notable mover following a report from a German business magazine in which Citigroup CEO Michael Corbat dismissed the prospects of a tie-up with the troubled European lender.
Corbat reportedly told Manager Magazin, a respected business publication in Europe's largest economy, that there was "too much overlap" between Citigroup's and Deutsche Bank's businesses and that a takeover based purely on cost savings wasn't a good idea.
Deutsche Bank shares were marked 1.45% lower in Frankfurt following release of the interview Thursday, outpacing the 0.57% decline for the broader DAX performance index, and changing hands at ?,?8.22 each by mid-day
Italy's coalition government has said it won't back down on spending commitments made during the spring election campaign, irrespective of any penalties impose by Brussels, while the EU's top economic minister, Pierre Moscovici, told reporters he was confident a deal could be reached given that it was in "everyone's interest" to do so.
Italy's benchmark 10-year bond yields were marked 4 basis points higher in Thursday trading at 3.52%, taking the extra yield, or spread, that investors demand to own that paper instead of triple-A rated German bunds to around 3%.
Britain's FTSE 100, meanwhile, fell 1.4% to a session low as the pound climbed higher on the draft text news by mid-day of London trading.
Markets in Asia were similarly cautious in overnight trading, as well, although Japan's Nikkei 225 managed to gain 0.65% by the close of trading in Tokyo to end the session at 21.646.55 points while the region-wide Asia ex-Japan benchmark edged 0.1% higher despite pullbacks for stocks in Shanghai, Shenzen and Hong Kong.
Global oil prices slipped lower during the European session, as well, following data from the U.S. Energy Information Administration yesterday which showed domestic crude stocks rose by a larger-than-expected 4.9 million barrels last week, the ninth consecutive increase that took inventories to the highest level since December of last year.
Markets were also reacting to an overnight Tweet from President Donald Trump which praised Saudi Arabia for helping lower global oil prices, but said further declines were necessary, although the President appeared to confuse Brent oil prices with those of WTI crude when congratulating his own success in influencing markets.
Oil prices getting lower. Great! Like a big Tax Cut for America and the World. Enjoy! $54, was just $82. Thank you to Saudi Arabia, but let's go lower!
- Donald J. Trump (@realDonaldTrump)November 21, 2018Brent crude contracts for January delivery, the global benchmark, were seen 44 cents lower from their Wednesday close in New York and changing hands at $63.04 per barrel while WTI contracts for December, which are more tightly liked to U.S gas prices, were marked 57 cents lower at $54.06 per barrel.