European markets finished last week lower despite the strong US jobs report on Friday doing its best to lift the mood of investors. The sell off can yet again be put down to political jostling as Donald Trump’s administration yet again reignited the global trade war discussion by removing the exemption of Canada, Mexico and the European Union from the steel and aluminium tariffs. Add this to the political issues in Italy, and the new government in Spain and it shows the growing uncertainty over the political backdrop.
Looking ahead to the rest of today’s session and the week ahead, and it’s likely to be these similar stories that dominate proceedings, at least on Monday as the economic calendar is quiet. As we move into Tuesday however we have the services PMI readings out of the eurozone and UK as well as retail sales in Europe.
With Italy’s new government expected to be confirmed today, and the issues now at the heart of Spanish politics, these changes could cause an issue for Mario Draghi and the ECB, as calls grow louder for the central bank to begin tapering back the asset purchase program. There will be sense of stability bought to the political backdrop today as the Italian government is confirmed, which could help to lift European stocks and bond markets after last week’s turbulence.
The issue of euro membership is still a hot topic especially after the Italian elections, however a poll released this morning from Italy shows that only 29% of Italians polled would be in favour of exiting the eurozone. No referendum has been official touted in Italy; however, noises have been made since the election that this could be an option. However, this poll shows that more work would needed by politicians if this were to become a reality.
With a rebound expected after last week’s European turmoil and the stronger US jobs report we expect a strong start to trade in Europe at the start of the week ahead of the week’s big data on Tuesday and Wednesday.