Italian elections have put the Euro in focus for Monday’s session after a hung parliament outcome in the country’s elections on Sunday. Although the populist 5 Start Movement party got the highest number of votes the country remains in limbo as we now face weeks of negotiations as a new government is formed. On the back of the results, Italian stocks and bond yields have fallen lower with the FTSE MIB down over 1%.
Italy is not the only story affected European markets this morning, as in Germany SPD members voted 66% in favor of a coalition with Angela Merkel’s CDU party. This news obviously will finally take away the feeling of uncertainty around the German government and see Angela Merkel lead her fourth German government. Of course, it is the uncertainty that causes the issues, much like last week’s Brexit news. The fact that markets have been waiting for such a long time for an agreement here means that the swings in the Euro over recent uncertainty has been rather muted, and the relief today has been offset by the Italian election result.
Donald Trump’s hard America First stance is another major talking point for this week as European Car shares have fallen aggressively after yet more comments surrounding the new plan to add tariffs to aluminum and steel imports. The obvious fear from the President is that the EU will retaliate to his added tax, so yet again a round of threats have come from the White House. In Europe BMW, Volkswagen and Daimler all fell lower first thing this morning before bouncing back.
After last week’s continuous Brexit headlines, it is likely to be a little calmer this week on that front, however, there is always the risk to Sterling pairs and the FTSE of a new development. The markets are still trying to decipher what exactly all the headlines from last week mean, but it does show that it is very much the uncertainty that causes the moves, not the headlines themselves.
Later in the week, there will be a focus back on the US with the US jobs report on Friday and the proceeding ADP payroll on Wednesday afternoon. Until then it may be that we can actually take a step back from US interest rates for a moment, with the focus likely to be on President Trump and his trade war with Europe rather than a 3 or 4 2018 rate hike discussion.
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Ongoing rate curve repricing and risk asset reaction perfectly illustrate how worryingly reliant investors have become on easy money policies