Euro and European Bourses Hit Hard By Rising European Political Risk
European bourses and the euro are at risk of further losses, as political instability in two of the eurozone’s largest economies sends jitters through the markets.
Italy’s President frustrating the two populist eurosceptic parties forming a coalition, plus a potential vote of no confidence in Spain as soon as Friday has sent the euro to an almost 7-month low versus the dollar.
Whilst Italian President Sergio Mattarella vetoing the League’s and the 5 Star Movement’s choice of anti-euro, Finance Minister Paolo Savona, might be good for the euro in the short term, euro traders were already looking ahead to the potential for a fresh round of elections in the Autumn. The most likely outcome is a higher following for the eurosceptic, populist parties that were unable to build an administration this time round. In short, bad news for the euro.
In Spain, as investors focus on political uncertainty ahead of the second vote of no confidence in under a year, the IBEX dipped to a 1 month low. We are not expecting a strong rebound from either the IBEX or the euro until there is more certainty over Prime Minister Rajoy’s position this Friday. Rajoy has survived a vote before, there is a possibility that he can do so again, although the markets are showing signs of waning confidence after dozens of corruption convictions for people closely linked to his party.
The overriding problem for investors is that these are two of the largest, most important economies in the eurozone. Euro traders are aware that the potential fallout from Italy mainly, but also this Spanish headache, dwarfs the fallout which could have been following the Greek debt saga and as a result the euro has fallen heavily out of favour and has continued to decline overnight.
With potential elections just around the corner in both Spain and Italy, a summer of volatility now seems almost a given.
Dollar King Ahead of Busy Week
Dollar strength is doing little to ease the pain of the falling euro. Whilst US was closed for an extended weekend break on Monday, the economic calendar quickly ramps up with high impact releases every day culminating in the non-farm payroll figures on Friday. Market participants will be watching the data closely, beginning with Consumer Confidence today, for confirmation of the rate hike in June, which is 87.5% priced in.
Consumer confidence is expected to have eased slightly given recent geopolitical tensions and potential trade wars; however, it remains close to 5-year highs.
Oil Mixed As Production Cut Easing Unlikley to Be Agreed In June Meeting
Oil prices were mixed overnight, after shedding a further 1.4% in the previous session in an extension of the 2.6% losses from the previous week. Concerns that Russia and OPEC are on the brink of easing current supply production cuts has pulled oil quickly away from recent 4-year highs; however, suggestions that nothing would be agreed at June the OPEC meeting is keeping the price buoyant around $75 per barrel.
Opening calls
FTSE to open 35 points lower at 7695
DAX to open 24 points lower at 12839
CAC to open 10 points lower at 5498