Ratings agencies take UK off downgrade watch following Conservative victory

Ratings agencies Standard & Poor's and Fitch scaled back their warnings that Britain faces another credit downgrade. They said the Conservative Party's election victory last week reduced the risk of a no-deal Brexit next month. 

S&P raised Britain's outlook to "stable" from "negative," while Fitch took the country off its rating watch negative list, despite maintaining its broader outlook as "negative." 

Johnson is introducing legislation which will prevent the country from asking for an extension longer than the Brexit transition period, which is currently meant to expire on 31 December 2020. 

Many trade experts say this leaves too little time to sort out future trade agreements. 

S&P said it expected a no-deal Brexit at the end of next year would be avoided by London asking for an extension.   

German environment minister proposes 25-euro carbon price 

German Environment Minister Svenja Schulze said on Wednesday she is proposing carbon dioxide emissions are set at a price of $27.83 (25 euros) per ton as part of measures to combat climate change. 

Schulze had previously proposed a rate of $38.97 (35 euros) per ton. 

On Monday, government sources said a higher pricing rate for CO2 emissions from transport and heating buildings will be implemented from 2021, after a proposed 10 euro price tag was criticized for being too low. 

It is expected that German lawmakers will vote on the proposal later this week. 

Fiat Chrysler and Peugeot agree to auto deal merger 

Fiat Chrysler and France's PSA, which owns Peugeot, have struck a merger pact, which would create the world's fourth largest car maker, resulting in combined revenues of $144 billion. 

The two companies said they had signed a binding "combination agreement" for a tie-up that would create an "industry leader" with greater scale and ability to invest in new technologies. 

Shareholders in the new group would hold 50 percent ownership in the new entity.

The new group would generate recurring operating profits of more than $12 billion. No plants would close as a result of the merger, which the companies also said will create cost savings of around $4.12 billion. 

Both PSA and Fiat said they are forecasting for the transaction to be be completed within 12 to 15 months, depending on shareholder approval and regulatory clearances. 

The markets might be thinking about winding down into holiday mode, but there is still plenty of talk on the trading floor.

Is the honeymoon over? 

It has been less than a week since the knockout Conservative election victory in the UK and the initial euphoria on financial markets is waning. The pound tumbled 1.5 percent overnight and shares tanked on perceptions that the country faces a "hard Brexit."

Prime Minister Boris Johnson said he wants to wrap up a trade deal with the EU within 11 months, but his comments around the Brexit Bill not including the possibility of an extension of the transition period at the end of 2020 have political commentators scratching their heads, pondering the impossibility of such a tight time frame to negotiate and put in place a free-trade agreement.

For Jeffrey Halley, senior market analyst at OANDA, based in Singapore, the fact the pound appears to have lost all its election gains suits his spending plans.

"With one daughter in London, I am a natural Sterling bear ... the lower the pound goes, the cheaper she gets. Which still isn't very cheap." he said.

Trade optimism fatigue...

In the US, Wall Street had a breather, with stocks not really budging on positive data news on any of the main indices – the S&P 500, Nasdaq or the Dow Jones – with investors consolidating their gains after last week's trade deal rally. 

Boeing 

The markets had wagered that Boeing would have everything sorted by the end of the year, but since it hasn't, the already turbulent share price tumbled. Boeing's decision to suspend 737 MAX production indefinitely in January might also hit the US economy since Boeing is America's largest manufacturing exporter. The outlook is even bleaker for the plane maker – if the Federal Aviation Authority does not reauthorize the grounded planes for flight by the middle of next year, job cuts are likely. 

Source(s): Reuters