Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Steady Start For Europe Despite Italy Uncertainty

By CMC Markets (Michael Hewson)Market OverviewMay 17, 2018 07:33
uk.investing.com/analysis/steady-start-for-europe-despite-italy-uncertainty-200201527
Steady Start For Europe Despite Italy Uncertainty
By CMC Markets (Michael Hewson)   |  May 17, 2018 07:33
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Markets in Europe traded in a positive fashion yesterday, helped in no small part by a weaker euro and pound as the US dollar continued to climb, though markets in Italy proved the exception to that, with stocks there posting their biggest one-day decline since the March election.

Weak EU core inflation also remained near multi year lows, casting doubt around the ECB’s ability to commit to reining back its asset purchase program later this year, helping push the euro to its lowest levels this year.

Concerns about trade appear to be taking a back seat for now despite the WTO ruling in the US’s favour against Airbus (LON:0KVV), giving the Trump administration the option of another stick to beat the EU with in upcoming trade talks, though the EU’s counter claim against Boeing (NYSE:BA) at the WTO could well go the other way in the coming weeks, thus cancelling out this week’s US win.

It is increasingly becoming much more difficult to predict which way the Trump administration will turn with respect to trade given the recent surprising U-turn on the President’s part with respect to China’s ZTE (HK:0763).

It was Teddy Roosevelt who first coined the phrase 'speak softly and carry a big stick' when it came to foreign policy. President Trump appears to be turning that on its head by adopting a policy of shouting loudly at every available opportunity, and occasionally using the stick.

Despite rising US yields, US equity markets did manage to recover some of their Tuesday losses, though not all of them, as investors weighed up the likelihood of another three US rate rises against the likelihood of further gains when valuations appear already quite stretched.

Italian yields hit their highest levels this year on the back of concerns that a new Italian coalition government could upend the status quo in Italian politics with measures like a call for €250bn of debt forgiveness on Italian debt, as well as the prospect of a roadmap to euro exit.

While the anti-establishment parties of Five Star and Lega insisted that the text of the coalition agreement was an old one, the fact that the €250bn amount was there in print, had the effect of reawakening concerns about their commitment to the euro project. This really shouldn’t come as a surprise given that both sides haven’t been particularly shy in the past about admitting their desire to upend the status quo and have new discussions about how to move forwards in a manner that harks back to a pre-Maastricht treaty status quo.

Despite the extent of the selloff in both Italian equity and bond markets yesterday the market reaction needs to be put into the context of where they were just over six months ago. Italian yields closed at their highest levels this year at 2.10%, while the FTSE MIB still remains over 8% higher year to date.

Banks were the biggest fallers in the Italian market over concerns that they would be worst affected by a debt cancellation given that they own over 20% of outstanding Italian debt.

For now the market fallout appears confined to Italian markets, and is likely to remain so in the short term, given that even if they wanted to deliver on their pledges, talking about them is likely to be the easy bit. Getting them implemented is likely to be much more difficult with parliament and the courts likely to be major obstacles.

EURUSD – has slipped below the 1.1800 level hitting the 1.1780 target and raising the prospect of further losses towards the December lows at 1.1710 and even the 1.1600 level. With the 200-day MA now starting to roll over the prospect of further losses looms large, while below 1.2000.

GBPUSD – made a marginal new low at 1.3450 this week but pressure remains on the downside and a move towards the 1.3300 level. We need to overcome the 1.3620 area to stabilise and argue for a move towards 1.3720.

EURGBP – continues to drift lower after the week’s failure at 0.8845 and the 200-day MA at 0.8880 the risk remains for a move back towards the 0.8690 level, and even the recent lows at 0.8640.

USDJPY – finally cracked the 110.00 area as well as the 200-day MA and trend line resistance at 110.30, suggesting the potential for further gains towards the 111.20 area. We need to hold above the 109.70 area for this to unfold or risk a return to the 108.70 area.

FTSE100 is expected to open 4 points lower at 7,730

DAX is expected to open 9 points higher at 13,005

CAC40 is expected to open 13 points higher at 5,580

"DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Original post

Steady Start For Europe Despite Italy Uncertainty
 

Related Articles

David Madden
Wall Street Rallies On Falling PPI   By David Madden - Aug 11, 2022

The fall in US producer price index (PPI) triggered a fresh round of buying on Wall Street and the S&P 500 has set a new three-month high. The PPI reading cooled to 9.8%, from...

Steady Start For Europe Despite Italy Uncertainty

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email