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Oil rallies over supply cut talks; pound sheds under Brexit pressure

➤ Brent crude oil rises as Saudi Arabia plans supply cuts.

➤ Brexit woes drag sterling; euro also falls against dollar.

➤ SAP drops on $8 billion deal; tobacco stocks plunge on FDA ban report.

➤ Italian bonds slip ahead of budget revision deadline.

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Brent crude oil jumped 1.01% to $70.89 per barrel on the ICE Futures Exchange as of 7 a.m. ET, amid reports that Saudi Arabia is considering decreasing crude oil production by 1 million barrels per day from October levels to cater to supply concerns.

Earlier, the kingdom's Energy Minister Khalid al Falih said Saudi Arabian Oil Co. would reduce its supply of crude oil by 500,000 barrels per day in December due to lower demand. Russia views the current surplus in crude oil production as temporary, suggesting that it may be a while before OPEC and its allies officially announce a production cut, according to Michael Hewson, chief market analyst at CMC Markets UK.

"The speed of the decline [in oil prices] from the recent peaks appears to have caught a lot of people by surprise but given that there have been rising concerns about a global slowdown, the prospect of a move towards $100 [per barrel] as some had predicted had always seemed unlikely," Hewson wrote in a daily note.

OPEC and the International Energy Agency are due to release their respective monthly oil market reports this week. West Texas Intermediate crude futures rose 0.40% to $60.43 per barrel.

Sterling shed 0.78% against the dollar to below $1.29 as British Prime Minister Theresa May faces increasing resistance to her Brexit proposals from her cabinet and the opposition Labour Party. The currency has come under pressure since junior Transport Minister Jo Johnson quit his post last week over the government's handling of the Brexit negotiations, with less than five months before the U.K. is due to leave the European Union.

The euro slipped 0.65% against the dollar as concerns about Italy's budget clash with the EU came back to the fore, with the government in Rome having until tomorrow to present revisions to its 2019 spending plans to the European Commission. Yields on 10-year Italian government bonds added 6 basis points to 3.45%, while those on German Bunds with the same maturity lost 2 basis points to 0.39%.

The Chinese yuan fell 0.12% as the People's Bank of China removed its pledge to allow "market supply and demand to play a bigger role in deciding the exchange rate" in its third-quarter monetary report. The Japanese yen slipped 0.18% and gold dipped 0.16% to $1,206.70 per ounce as the dollar continued to strengthen since the Federal Reserve's signals last week of a rate hike in December.

Meanwhile, Wall Street looks set for a weak open this morning amid declines in European equities. Bond markets in the U.S. are closed for a holiday.

The U.K.'s FTSE 100 dipped 0.15%, while the eurozone blue-chip Euro Stoxx 50 index fell 0.37% and the wider Stoxx Europe 600 declined 0.39%. British American Tobacco PLC shares plunged more than 9%, while Imperial Brands PLC dropped nearly 4%, after reports that the U.S. Food and Drug Administration is considering a ban on menthol cigarettes as early as this week, in line with its efforts against the use of e-cigarettes and similar products among minors.

Germany's DAX index dipped 0.85%, with SAP SE's shares down more than 3% after the company agreed to acquire experience management software firm Qualtrics International Inc. for $8 billion in cash. Infineon Technologies AG fell more than 7% after reporting a decline in fiscal fourth-quarter profit.

Earlier in Asia, Japan's Nikkei 225 index edged 0.09% higher, while Hong Kong's Hang Seng index was up 0.12% and the Shanghai SE Composite rose 1.22%. Tencent Holdings Ltd. dipped more than 3% ahead of its quarterly earnings this week, while major Chinese banks mostly declined as the government tried to clarify its push to boost lending to the private sector.

Meanwhile, shares in Alibaba Group Holding Ltd., which are down 0.31% in pre-market trading in New York, will be in focus today after the Chinese e-commerce giant's annual Singles' Day shopping event generated $30.8 billion in gross merchandise volume.

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