Italy to become Quitaly?
The Euro continues to suffer after an early rebound yesterday failed to gain momentum. Political uncertainty and thin market liquidity are weighing on the shared currency with investors expected to stay away from the Euro assets as long as chaos lingers. Credit rating agencies have warned that they may cut the outlook over fiscal plans of the Five Star Movement.
With the Italians heading to the polls again in September, markets are worried whether the fresh elections will deliver a stronger mandate to the anti-Euro parties. The looming concerns have crashed the investor confidence in the Italian bond markets, sending the two-year Italian yields above 1% for the first time since 2014. Rising Italian bonds yields, in turn, have pushed the Italian-German yield spread to a five-and-a-half year high, which is seen as bad for the Euro.
In the day ahead, the political risks will continue to weigh on the Euro ahead of the speeches by the European Central Bank (ECB) members Mersch and Lautenschlaeger.
The Pound is trading flat this morning, now near lows against the Dollar of 1.3270. UK markets were closed yesterday due to Spring Bank Holiday, which came at an opportune time after Sterling plummeted to a six-month low. Volatility is expected to return today, with a negative bias for Pound.
Despite banks coming back online for the new week today, Sterling still sees a quiet schedule, with only the BRC Shop Price Index.
The US Dollar is steady this morning after posting its 6th successive weekly gain. Today and for the early part of this week, investors are expected to recalibrate their positions ahead of month-end and Nonfarm payrolls data due Friday.
The rally in the Greenback comes despite the continuation of the downward move in the US 10-year yields below the 3.0% level, dropping to the 2.98% area. Further, the Trump-Kim Jong meeting next month has gained some traction again, while trade negotiations continue between the US and China.
In the data space, the Conference Board will publish its Consumer Confidence gauge later, seconded by house prices tracked by the S&P/Case-Shiller index for the month of March.
Data to watch:
11:30 EUR ECB’s Mersch speech
14:00 USD S&P/Case-Shiller Home Price Indices (YoY) (Mar)
17:30 EUR ECB’s Lautenschläger Speech
22:00 NZD RBNZ Financial Stability Report
23:45 NZD Building Permits s.a. (MoM) (Apr)