Global markets are back in full swing with US Treasury Yields suffering their worst decline in nearly two years tumbling 15 basis points to 2.77% and the Dow Jones dropping a near 400 points (1.58%) in the US trading session yesterday. Asian markets opened with a drop this morning with the Nikkei in Tokyo dropping 1.52% and the ASX 200 in Sydney falling 0.5%. Such a reaction is just another phase of the on-going political turmoil taking over Italy and adding revised sentiment to spook investors. EURUSD initially struggled to stem the downside trend having seen lows of 1.1523 yesterday with open at 1.1537 this morning. However, a positive start has seen EUR gain 0.5% on the USD so far, testing 1.16 with highs of 1.1597. Further developments are leading to a potential snap election taking place in autumn with multiple reports of a clear initial front runner: Matteo Salvini, leader of the Anti-immigrant League Party. Salvini’s popularity appears to have soared following the dissolution of the presumed coalition between Italy’s Five Star Movement and Lega. Italian President Sergio Mattarella’s controversial veto was in direct response to the prospect of Italy’s presumed government removing the country from the general euro currency, but has the decision only resulted in deeper rooted response? The populist flame that still burns within many European nations looks set to fuel a more a united response against general restrictions of a voted government. This being said, it must be noted that Italy remains a long way from leaving the euro at this current point. Probability remains thin and if past-events with the likes of Greece, Portugal and Ireland are anything to go by, the more consistent and closely monitored supervision of European banks, along with tougher fiscal rules introduced post-2012 will be a key barrier in achieving Italy’s exit from the euro.
Aside from the mentioned US market drop yesterday, general news headlines focused on Trump’s confirmation of the introduction of tariffs to China’s steel and aluminium trade basis. The confirmation reignited the fears of a global trade war. According to reports the tariffs are a direct response from Trump on China’s ‘systematic campaign’ to ‘steal’ US technology. Initial market response has seen the dollar decline against the majority of G10 currencies in overnight trade.
UK markets were generally quiet across the board yesterday following a sunny Bank Holiday weekend. GBPEUR remains within the mid 1.14’s, briefly testing 1.15 this morning with highs of 1.1496. GBPUSD has opened on the front foot (slightly as it may be) testing the 1.33 with highs of 1.3290. Brexit news has been quiet ahead of June’s initial summit to which PM May is looking to be on the front foot in negotiations. The biggest subjects are the future of the Irish Border and the UK’s customs relationship post-Brexit. Data releases are thin today with general European Flash CPI Data for Germany and Spain this morning. No UK data is due for release with Friday’s Manufacturing PMI in focus. On the US side we have initial ADP Non-Farm’s at 1:15pm and Preliminary GCP (forecast unchanged 2.3%) at 1:30pm.