Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Italy And Inflation Setting Markets Up For Busy Week

Published 06/26/2017, 05:46 AM
Updated 07/09/2023, 06:31 AM

With DM quiet, investors move into EM

Last week was a drift for currency markets on the whole and with India, Indonesia, Singapore, Malaysia and the Philippines all on local holidays today the week has started quietly. The marquee events this week are mainly on Thursday and Friday and so we will have a few more days of solitude to get through before we see some movement.

The quieter conditions within developed market currencies has naturally led investors to pile back into the carry trade and buy emerging market currencies. The ‘carry trade’ is one whereby investors borrow low volatility currencies at low interest rates for example JPY or the SEK, sell them and buy higher yielding currencies or assets; the difference in between is profit as long as markets remain calm.

Inflation stats due later in the week

There are some bumps in the road to come of course and the sense of nervousness that those in markets are feeling will likely preclude anything running off too fast or going too far. Once again it is inflation data that will dominate sentiment. Is growth in the US/Europe/Japan doing enough to meaningfully create stable and sustainable inflation and should interest rates be higher? A report over the weekend from the Bank for International Settlements seemed to think so while comments from German and American central bankers echoed similar thoughts.

Politics have not gone away

While politics have dominated markets recently, those headlines have tended to come from the UK or the US but focus has fallen overnight on Italy as blast from the past and comedy sketch writers’ favourite Italian politician Silvio Berlusconi is back on the scene following wins for his centre-right party in Italian municipal elections over the weekend. A general election in Italy is still possible by the end of the year but will likely take place in 2018 and while Berlusconi is not as much of an unknown quantity as Beppe Grillo’s 5 star movement, both want significant and fundamental changes to the Italian relationship with the EU including, in Grillo’s case, leaving the euro.

The euro has not responded much to the news on Friday that the Italian government will bail out 2 of the Veneto region’s largest banks at a cost of EUR17bn.

That is not to say that British politics cannot throw its own spanner in the works. GBP is gaining a little this morning which some are attributing to the belief that we are only 24/48hrs away from a deal between the Conservatives and Northern Ireland’s Democratic Unionist Party. Any deal in itself that allows the government to ensure passage of the Queen’s Speech should help sterling higher but this alone will not quell the political insecurity that is undermining sterling.

Similarly we expect some movement on US healthcare this week which investors will use as a hint that some changes to taxes may be the next legislative item for markets to contend with and, as such, the dollar will be more in focus this week than it has been for a month or so.

IFO the only real announcement of the day

Today’s data calendar is on the quiet side however with the German IFO survey of business confidence the only release of note.

Latest comments

Risk Disclosure: 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.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.