The week has opened with some concern in Europe as the anti-establishment groups surged in popularity in Italy. The far right Anti-Immigrant League and euro sceptic 5 Star Movement have both seen increased popularity in yesterday’s Italian vote and early counts suggest they just might have enough votes between them to secure the lower house majority. The issue and uncertainty however will stem from the ability of a coalition to be formed, what will follow will likely be weeks of talks and negotiations and will require the Anti-Immigration league to go back on their campaign promise of not joining forces with any other party. Either way, the rise of these anti-establishment parties could spell serious trouble for project Europe, in what has been a growing trend across the region.
Elsewhere in the political landscape the SDP in Germany backed a coalition with Angela Merkel’s party and hope some progress on governance in Europe’s core initially had the euro open the week on firmer footing. EURUSD however had dropped back below 1.2300 and support just above 1.2250 will be the first major target on the move lower. Retail sales and PMI data headline the morning’s calendar today. The ECB are due to meet Thursday so markets may well be more focused on that event risk. While no change is expected in policy, markets will be keen to see if guidance is given via a shift in language. Given the euro’s rally following the last meeting, markets have quite lofty expectations from the ECB, if these are not met, the euro may well face more selling.
General sentiment across markets remains cautious as the fallout from the US’s proposed trade tariffs weighs in markets. A late rally in US equities in Friday was negated by souring sentiment over the weekend and thus far this morning Asian bourses closed in the red, while European stocks have also opened the week trading lower. US futures also pointing to a weak start. The good news for the greenback however is that continued hawkish rhetoric from the Fed has seen the USD index bounce over 3% from its lows in early Feb. PMI data the focus for this afternoon action.
GBP faced some selling on Friday as PM May offered up her latest thoughts on Brexit. The general feedback in markets was there was nothing new offered, the same old rhetoric was pushed and as a result triggered some fresh selling. It has since recovered somewhat but GBPUSD trades are almost as low at 1.37, down from 1.4300 area highs in Feb. While EURGBP was pushed to the high end of its 6 month range, trading just below .8960. Services PMI data headlines this morning’s releases but the pound may have to wait until Friday when industrial and manufacturing production data, as well as retails sales figures are all due. Otherwise Brexit sentiment will continue to dictate GBP direction.