Market buzz: Rise in Brent gives BP, Shell a lift

Big gains for oil after Reuters reported that Saudi was likely to stand by its pledge to curb oil supplies until the end of 2018 also helped, stoking big gains in crude oil futures.

Most base metals prices also ended the day higher, even after White House trade adviser Peter Navarro chided the Treasury's Mnuchin for having claimed the China-US trade war was now "on hold".

Three-month LME copper did however drift down by 0.15% to $6,900 per metric tonne.

For some analysts, the White House's decision to push ahead with possible tariffs on Chinese goods was criticism in Congress that Trump may have been too quick to roll-back the threat of sanctions on China's state-owned ZTE.

As regards the price of copper, there was some analyst chatter on Wednesday regarding slowing growth in China. As one example of that, analysts at BoA-ML wrote to clients saying: "We believe China's underlying fiscal policy stance has tightened since 2017, with lower augmented fiscal deficit to GDP ratio and stabilizing government debt ratio. We believe such trends could continue in the near term, given policymakers' still sanguine view on the growth outlook and the emphasis on controlling leverage especially related to local governments/SOEs.

"Especially with lower risks from US-China trade disputes, we believe Chinese policy makers will maintain their appetite for tighter regulations on local government debt management in the near future. That implies fiscal expenditure would be increasingly financed by official funding sources, and local governments' borrowing capability via various indirect channels would be contained. As a result, infrastructure investment growth will likely be under pressure."

FTSE 100 up 0.75% or 56.93 points to 7,689.57.

1601: At least some analysts remain quite cautious as regards the outlook for Italy:

BoA-ML:

"A populist government in Italy, given its focus on fiscal reflation, was always going to collide with the European rule-book, but the decision by the President to block the nomination of a Eurosceptic finance minister, opening the door to new elections, makes the Italian debate about the euro even more binary.

"The timing is very uncomfortable, as this political crisis is taking place while the ECB's arsenal is already depleted. [...] It does not help that political noises are emerging from Spain as well, even if there we remain more constructive."

Capital Economics:

"The fallout from the latest political turmoil in Italy has so far been contained, with limited impact on other euro-zone countries’ financial markets. There are good reasons to expect this to remain the case in the near term. But the size of Italy’s debt stock means that if fears of an Italian euro exit continue to build, the risks of contagion would jump."

Meanwhile, in Spain, local observers are openly speculating with the possibility that PM Mariano Rajoy might step down of his own accord if it looks as if either the Citizens party or the Basque nationalist PNV might be about to back the vote of no confidence, in order to block Socialist leader, Pedro Sanchez, from automatically taking his place.

1544: Front month Brent crude futures are 1.64% higher to $76.65 barrel on the ICE, giving London-listed BP, Shell and Tullow a good lift.

Boosting oil prices, citing a Gulf source familiar with Saudi thinking, Reuters reported that the Kingdom, other OPEC states and allies from outside the cartel were set to stick to stand by their deal to cut supplies until the end of 2018.

However, they reportedly stood ready to increase supplies gradually in order to compensate for any shortage.

1543: The impact on the US economy of the White House's proposed tariffs on $50bn of Chinese goods would be "minimal", Oxford Economics says.

"However, an escalation of tensions with the US imposing tariffs on $150 billion of imports – 30% of total merchandise imports from China – would more significantly curb activity. If such tariffs were implemented, and China retaliated, the cumulative loss of GDP over 2018-2019 could reach over 0.3% in each economy.

"The tariffs also come a few days after President Trump was heavily criticized (including by US Republicans) for agreeing to keep telecom equipment-maker ZTE in business. The Chinese company had been banned from buying components from US businesses and was on the brink of collapsing.

"Looking ahead, we assume some tariff imposition between the US and China, and simmering tensions surrounding industrial policy and technology transfer. With both economies viewing the other as not playing “fair”, the risk of tension escalation is real."

1330: US second quarter gross domestic product revised down from a preliminary print of 2.3% annualised to 2.2%.

1330: US trade deficit comes in at -$68.19bn (consensus: -$71.1bn).

1315: US ADP employment report for May prints at up by 178,000 (consensus: 195,000), a negligible miss. But April's reading has been marked down from 204,000 to 163,000.

1300: Harmonised consumer prices in Germany jump from a 1.4% pace year-on-year for April to 2.2% in May (consensus: 1.8%).

1151: Hearing and reading this by a couple of persons regarding Italy, when you least expect it they tend to pull an ace out of their sleeves. Let's see.

1150: Italian 10-year BTP yield down 19 basis points to 2.97%.

Changing subjects, the Journal is apparently reporting 2-4 June trade talks between US-China might be derailed.

1137: Things can't be too good if you're monitoring the results of euro area debt sales again?

The Continent's main stockmarket gauges are climbing off their session lows after what appears to have been a roughly successful auction of Italian government debt.

The Treasury in Rome sold €1.75bn of five-year debt at an average yield of 2.23%, versus 0.56% the last time around, with the bid-to-cover ratio improving from 1.36 to 1.53.

Another €1.82bn of 10-year debt was sold at 3.0% (Previous: 1.7%), with a b/c of 1.48 against 1.38 last time.

Analysts at TD Securities said demand was "decent".

"We would like to observe the market reaction in the next couple of hours to assess how well the curve absorbed this supply," they said.

"Marginal support for BTPs also comes from Italy benefiting from significant end month-end index extensions. In addition, Italy also sees bond redemptions of €18.5bn on June 1."

FTSE 100 up 17.33 points to 7,649.47.

0955: Some reports cite Italian League's Salvini as saying he does not see any chance of forming a coalition government at present.

0954: Stocks have started the morning flitting in and out of the green amid news that parties from across Italy's political spectrum are trying to work out an 11th hour deal for a caretaker government until new elections are held.

Nevertheless, traders are still very much on their guard, given the previous day's price action.

Miners and Financials are weakest in early trading.

Also weighing on sentiment, apart from Italy, are the latest headlines around the ongoing trade talks between China and the US.

Overnight, the White House said it was still moving ahead with tariffs on $50bn-worth of Chinese made goods, with a list set to be published on 15 June and the levies due to come into effect "shortly thereafter".

According to the US administration, restrictions on Chinese investment in sensitive technology would follow on 30 June.

That has reportedly prompted an angry response from China, who said it would respond in kind.

The news comes ahead of a 2-4 June visit to Beijing by US Commerce Secretary Wilbur Ross and a 12 June summit between North Korean leader Kim Jong Un and US President Donald Trump.

FTSE 100 down 0.07% or 5.35 points to 7,626.84.