Italy Underpins Global Markets Again
City Index | Nov 26, 2018 13:03
Summary
Coordinated signals, subtle and vague from the leaders of Italy’s coalition government, are underpinning European stock markets again.
Italian coalition blinks
The mood—which is also contributing some buoyancy to U.S. stock futures— is reminiscent of sentiment that accompanied a handful of bounces last week. Then, it also appeared deputy prime ministers Salvini and Di Maio were considering a possible compromise with Brussels.
With European shares still markedly underperforming Wall Street this year, even after the latter’s ‘catch down’ in recent months, the pattern of corrective bounces has been quite prevalent.
One key difference on Monday is that Italian politicians have made little attempt—unlike last week—to re-shape the market’s optimistic interpretations. Both Matteo Salvini and Luigi Di Maio have hinted in separate comments that they are open to lowering the deficit target for next year’s budget. Doing so would avoid a disciplinary procedure from the European Union that could rekindle the significant volatility in stocks and bonds that have been a frequent Italian market feature this year. "What is important is that the budget contains the goals that we have established," Di Maio said later. "Then if the negotiation means that the deficit (target) must come down a bit, for us it's not important."
The draft deficit goal of 2.4% may come down to 2%, according to reports. The result of these comments is the biggest drop in the closely watched spread between Italy’s 10-year government bond (BTP) yield and 10-year bund yields since June.
Of interest to technical chart watchers: the Italian yield is trading below the rough 3.30% area for the first time since early November.
Optimism will have limits this week
As we suspected last Friday, the optimistic interpretation does indeed seem to be gaining precedence, as the government is increasingly willing to be open about its formula for a way out of the impasse. This latest sign that compromise may be possible may turn out to be rather late.
The first steps in the EU’s excessive deficit procedure have already been taken, with member states invited to examine the European Commission’s findings. The coalition’s propensity for equivocal public stances could also come back into play, as it has on other occasions when pragmatism appeared to be set to break out.
Get The App
Elsewhere, the government remains just as committed to difficult-to-square spending plans. In short, with significant headline risk built in this week, and in the weeks just ahead, we expect the limits of market optimism over Italy to be palpable.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient.
Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions."
Original post
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.