A late newsflash: Donald Trump has reportedly signed off the Phase One trade deal with China.

Details haven’t been released yet, but Bloomberg says this “deal in principle” means the next tranche of tariffs won’t be imposed on Sunday.

That’s probably all from our markets coverage today.

Stay tuned to our website in case of more developments -- and the latest on the UK General Election of course!

Reuters has heard that the White House is close to an announcement about a “deal in principle” with China.

One source told them:

“The written agreement is still being formulated, but they have reached an agreement in principle.”

Such a deal could allow the US to cancel, or delay, tariffs on over $150bn of Chinese goods due to come into effect on Sunday.

Reuters has also been told that the US has offered to lower some of the existing tariffs put on Chinese goods during the 17-month trade war.

However, I think we’re still only looking at the Phase One deal which Beijing and Washington have been inching towards for several weeks, rather than a truly comprehensive agreement.

If you’re just tuning in, here’s Reuters latest dispatch on the global markets:

MSCI’s global stock index hit a record high on Thursday and the U.S. dollar index gained after President Donald Trump said the United States was “very close” to reaching a trade deal with China.

The comment, days before new U.S. tariffs on Chinese imports were to be imposed, also sent U.S. Treasury yields higher. Wall Street’s main indexes had pared gains by late afternoon trading after initially spiking higher after the comments....

U.S. investors appeared to be laser focused onU.S.-China trade relations, which has recently been a key reason for volatility. The market fell sharply last week when Trump said a deal may not come until after the 2020 presidential election.

“Having sent up that test balloon and failed, the administration is saying the Dec. 15 deadline needs to be extended,” said Art Hogan, chief market strategist at National Securities in New York.

“The market is saying we can remain constructive as long as you are working towards a deal. Escalation means bad things for both the market and the economy.”

Trump was due to discuss the trade situation with his advisers at 1430 EST (1930 GMT), Reuters reported citing a source familiar with the matter.

People used to be encouraged not to tweet in ALL-CAPS. But Trump’s decision to promise that a BIG DEAL was VERY close has made Wall Street believe that it’s finally happening....

The US stock market is also holding its highs, on hopes of a trade war resolution.

The Dow is up 242 points, or 0.8%, at 28,142, and on track for a record close.

The Nasdaq is dipping back, though, following a report that America’s Federal Trade Commission is considering seeking a preliminary injunction against Facebook over antitrust concerns.

All the European markets closed higher, which should keep global stocks at today’s record high.

Here are the closing prices:

• FTSE 100: up 57 points or 0.8% at 7273
• Germany’s DAX: up 74 points or 0.57% at 13,221
• France’s CAC 40: up 23 points or 0.4% at 5,884
• Italy’s FTSE MIB: up 235 points or 1% at 23,390
• Spain’s IBEX: up 76 points or 0.8% at 9,468

Bethel Loh, macro strategist at ThinkMarkets, says:

An early Christmas present was gifted to markets as investors aggressively piled into risk assets after Trump tweeted a “big deal” with China was “very close”, once again controlling the narrative of one of the most corrosive trade wars in history

That is, despite China pushing back on the idea and standing by previous statements that only when tariffs are fully rolled back will a phase one deal be finalised.

Britain’s FTSE 100 index has ended General Election Day with some solid gains, amidst plenty of nervousness.

The blue-chip index closed 57 points higher at 7,273, a gain of 0.8%.

Trump’s trade optimism helped stocks, as did the weaker pound. Sterling is now down half a cent at $1.3138.

Where will it be shortly after 10pm, when the exits polls come out?.....

Donald Trump has a remarkable ability to move markets with a single tweet.

Today’s missive may be a hint that the tariffs due to kick in on Sunday will be postponed.

Michael Hewson of CMC Markets told clients this afternoon:

Markets in Europe initially got off to a fairly positive start, however they found the early gains difficult to hold onto as uncertainties over the latest US, China trade discussions kept investors cautious.

This caution lasted until just after the US open when President Trump tweeted that a “BIG DEAL” with China was getting very close. This of course had the wholly intended effect of juicing the markets higher, sending the FTSE100 to one week highs, and markets across Europe higher in general.

It also keeps alive the prospect that the 15^th December tariffs may well get deferred and it could well be this that we are leading up to. The US President needs an excuse to defer these tariffs, which means it is entirely in his interests to big up the prospect that a deal is close. There has also been reports that US negotiators are looking to cut existing tariff rates by 50%, on $360bn of Chinese imports.

The best performers have been financials helped by a sharp rise in bond yields, while basic resources stocks have also moved higher, a signal that investors appear to be buying the presidential narrative.

All three US stock indices are at record levels, thanks to Donald Trump’s optimistic tweet about the trade war with China.

America’s Dow Jones industrial average has hit a record high too.

The Wall Street index has surged by 1%, or 287 points, to 28,198 for the first time ever.

The Wall Street Journal is reporting that the US have offered to cut existing tariffs with China, to get a deal over the line....

Trump has thoroughly stolen Christine Lagarde’s thunder.

Investors have put the ECB president’s debut out of their mind, and return to thinking about the trade war.

Or as Reuters puts it, “Trump’s tweet shoos away the wise owl”.

Final question: has the ECB considered changing the limits of its Asset Purchase Programme (the bond-buying stimulus programme)?

No, says Christine Lagarde, we didn’t talk about changing this today [there have been concerns that the ECB could eventually run out of certain assets to buy]

And with that, she signs off with some sage (wise owl-like?) advice:

Happy holidays, Merry Christmas, and whatever you celebrate I hope you are happy, and make those around you happy.

Q: Greece has been achieving a primary budget surplus, as demanded by its bailout, so when will its debt be included in the ECB’s stimulus programme?

Christine Lagarde says she is “really delighted” with Greece’s recovery, and the progress made in recent years.

It’s very impressive, on both growth and the primary surplus, which I had my view on....

That’s a reminder that the International Monetary Fund, which Lagarde used to run, feared that demanding a budget surplus would hurt Greece’s economy.

Christine Lagarde is planning to accelerate the ECB’s task force studying digital currencies.

With stablecoins becoming more important (such as Facebook’s Libra) we’d “better be ahead of the curve”, she says.

There is clearly a demand out there that we have to respond to.

Perhaps Christine Lagarde was well aware of the guessing game about Mario Draghi’s tie? She’s wearing a very smart scarf, in euro-blue, for her first press conference.

Q: Is it sensible to launch a strategic review at a time when the ECB isn’t meeting its inflation targets?

There is never a good time, Lagarde hits back -- if you wait until all the targets are hit then people will say ‘why bother?’

It’s the appropriate moment to rally support, and reexamine the appropriateness of every instrument we have used in the past, she says. And there’s no question of the ECB changing its mandate of price stability -- just reexamining whether it’s approaching it correctly.

Onto questions.

Q: Your new inflation forecasts show inflation will only be 1.6% in 2022 - is that acceptable?

Lagarde says the ECB thinks inflation will be 1.7% in the last quarter of 2022, so nearer the target. So the direction is good (in terms of eventually hitting the ECB’s target).

In another dip into Mario Draghi’s greatest hits, Christine Lagarde is now urging eurozone politicians do to more to help the eurozone economy to grow.

She says:

In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential, supporting aggregate demand at the current juncture and reducing vulnerabilities....

Governments with fiscal space should be ready to act in an effective and timely manner. In countries where public debt is high, governments need to pursue prudent policies and meet structural balance targets.

The ECB has revised down its growth forecast for 2020, citing global factors such as weak trade growth.

It also expects no pick-up in growth in 2022 compared to 2021.

Here’s the new forecasts:

• 2019: 1.2%, up from 1.1% in September
• 2020: 1.1%, down from 1.2%
• 2021: 1.4% - unchanged
• 2022: 1.4% - new forecast

The risks are tilted to the downsides, but slightly less pronounced, Christine Lagarde says.

The governing council stands ready to adjust all its instruments, as appropriate, to ensure inflation returns towards the ECB’s target, Lagarde says firmly.

That’s a line straight out of Mario Draghi’s playbook.

During Mario Draghi’s tenure, there was a regular guessing game about what tie he’d wear for his press conference.

The underlying theory was that he’d pick out particular colours on big days. Credit Agricole even analysed several years of Draghi appearances... but didn’t find any significant link, alas.

Now there’s a new wheeze - what jacket will Christine arrive in?

Lagarde has previous form for sartorial signalling. She showed up at a crunch eurozone meeting in 2015 wearing a leather jacket, seemingly in solidarity with Greece’s left-wing government (finance minister Yanis Varofakis had worn a knee-length number when visiting the UK government that month).

Aaron Anderson, senior vice president of research at Fisher Investments reckons Lagarde won’t immediately shake up the ECB.

“Significant changes to the monetary policies Mario Draghi put in place earlier this year are unlikely in the near-term.

Christine Lagarde is very accomplished and well respected, but doesn’t yet have the central banking clout to change policy unless the economic environment changes materially. She is also very skilled politically and knows she needs to establish herself and get the Governing Council fully behind her before contemplating changes.”

There’s nothing in today’s policy statement to move the euro.....

The presidency may have changed, but the message from Frankfurt is the same: Eurozone interest rates will stay at record lows for some time.

The ECB says:

The Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.

The European Central Bank has left all three policy rates at record lows.

Its headline borrowing rate remains at zero, an all-time low. Good news for borrowers, but not for savers.

It has also maintained a negative interest rate for banks who deposit money in its vaults, at MINUS 0.5%. That’s meant to encourage them to lend to the real economy.

The ECB’s marginal lending facility, used by banks for short-term loans, will still charge a 0.25% rate.

Election day jitters seem to be weighing on the pound now.

After a bright start, sterling has dipped back from this morning’s 8-month high. It’s now down a third of a cent at $1.316.

That’s its lowest level since... *checks Refinitiv terminal*... yesterday lunchtime, so hardly a major move. But it suggests anxiety over the result of today’s election, as a hung parliament cannot be ruled out.

Today’s ECB governing council meeting could be a more consensual affair than normal.

Mario Draghi’s tenure saw some epic tussles, given the opposition to his stimulus plans from some central bank governors (eg Jens Weidmann of Germany).

Olivier Konzeoue, FX Sales Trader at Saxo Markets, reckons Christine Lagarde will look for more consensus.

Let’s bear in mind Lagarde who is a lawyer by trade will have to rely heavily on ECB council members to form the Eurozone central bank’s future policy.

As numerous ECB speakers have expressed their concerns on the prolonged use of negative rates of late, markets will watch communication on the matter carefully in order to find clues whether a consensus arose from discussions, potentially implying a break away from Draghi’s ‘do whatever it takes’ stance in the foreseeable future

The ECB governing council’s meeting should be drawing to a close soon, with today’s decisions due to be announced in an hour and 20 minutes.

Neil Mackinnon, global macro strategist at VTB Capital, suspects that hawkish members will prevent Christine Lagarde from easing monetary policy:

“Today’s ECB policy meeting is the last of the year and the first for ECB President Christine Lagarde. A split in the ECB Governing Council, with hawks expressing concerns about the side-effects of negative interest rates, as well as the expansion in the ECB’s balance sheet, presents a challenge for Lagarde.

The markets think her hands are tied and the markets are giving only a 30% probability to a rate cut prior to September 2020. Compared with the Fed’s balance sheet expansion, it is understandable why a growing number of currency strategists are looking for a stronger euro and weaker dollar in 2020.”

Eurozone factory output has fallen again, reminding Christine Lagarde that policymakers must do more to help the Euro economy.

Industrial production across the eurozone shrank by 0.5% in October, Eurostat reports. On an annual basis, production was 2.2% lower than in October 2018.

Production of heavy-duty machinery, or capital goods, dropped sharply, along with intermediate goods (products used to construct a finished item). That’s a sign that businesses are being cautious.

Eurostat says:

In the euro area in October 2019, compared with October 2018, production of both intermediate goods and capital goods fell by 3.6% and energy by 2.5%, while production of durable consumer goods rose by 0.9% and nondurable consumer goods by 2.7%.

Stocks are rising in London this morning, pushing the FTSE 100 to its highest level in over a week.

The blue-chip index has gained 48 points at one stage to 7,262 points, the highest since 3rd December. Financial stocks, energy firms, industrials and telecoms companies all gained ground.

AJ Bell investment director Russ Mould says the City is calm:

Investors seem calm on the eve of the UK General Election with the FTSE 100 up modestly and sterling steady, having recovered from a sell-off early yesterday on signs the polls were tightening....

All eyes will likely be on an exit poll at 10pm tonight which should offer some guide to the ultimate outcome.”

The ECB have got their Christmas tree decorated, outside the Frankfurt HQ:

But will Lagarde plays Santa or Scrooge today, as she outlines her monetary policy vision?

Christine Lagarde could help the ‘green finance’ movement today, by signalling that the ECB will do more to fight the climate emergency.

Environmental activists are demanding action -- on Lagarde’s first day, they marched outside the ECB’s headquarters with a banner that read “if the Earth was a bank you’d have rescued it”.

One option is to buy more green bonds -- although that runs a risk of distorting the overall (too small) market.

John Velis of BNO Mellon says:

Into the breach, the political, social and economic zeitgeist appears to have presented green bonds an opportunity to play a meaningful role in policy.

Whether it’s the US Democrats’ left wing pushing a Green New Deal, or President Lagarde orienting the ECB towards a role in combatting global warming, green bonds represent an attractive fiscal option, particularly in the eurozone.

Christine Lagarde will also release the ECB’s latest economic forecasts today.

They are likely to predict slow growth and weak inflation, meaning no pressure to change policy today.

Jim Reid of Deutsche Bank expects a cautious debut:

Staff forecasts for GDP growth, headline inflation and core inflation are likely to be stable for the first time since the exit from the APP was announced in mid-2018. The Council will likely remain cautious and view the balance of risks as still tilted to the downside. The accommodative policy stance will remain appropriate.

However, Lagarde is likely to oversee one immediate change. That is, they expect the willingness to use “all instruments” to be conditioned on an assessment of the possible side effects of policy.

Christine Lagarde could use today’s press conference to push eurozone governments to boost spending, to fight a future of weak growth and ever-low interest rates.

Kyle Rodda of IG says:

Monetary policy is losing its efficacy, and central bankers know that’s the case. Fiscal authorities, saddled by the decades of debt governments accumulated in the late 20 the century, have laid back since the US financial crisis, handing the reins of economic policy over to central bankers. Now, just like governments before them, central bankers are realizing the limitations of their policy tools, and want sovereigns to step back in to drive western economies back to “normal” economic conditions.

It’ll only be one moment in time for now, however President Lagarde’s speech could well define that will become the new normal for macroeconomic policy across the globe.