Market overview

Risk off mood continues in markets. Italian concerns mounted and markets endured a torrid day yesterday. The FTSE MIB fell 2.65%, whilst 10yr treasury bond yields rose by 48bp to 3.15%, their highest level since mid-2014; the sell-off in the 2-year was even more pronounced with yields rising 184bp. The 10 year spread over German Bunds widened to 281bp. Concerns are intensifying over Italy’s outlook and another round of possibly inconclusive elections as the President’s choice as interim PM, Carlo Cottarelli, yesterday met with President Mattarella, but left after just over an hour without making any statement, which has fuelled further fears that he may be struggling to suggest even an interim cabinet. A number of reports following the meeting have also suggested that given the opposition to Mr Cottarelli and any cabinet he may propose from 5 Star and the League, the President may instead call a snap election for as soon as 29 July.


Any early election is unlikely to produce a conclusive result given that polling since the March election continues to show no one party with sufficient support for an outright majority. However it could be argued that recent developments are playing into the League’s hand, given that the most recent polls have shown them gaining ground and in the fact that they could have simply proposed another Finance Minister rather than pulling out of government talks over the weekend. In terms of today, watch out for any news from Mr Cottarelli. In addition given the bond market strains, we may also be back to watching the outcome of Italian debt auctions, where the Treasury is set to issue €4bn worth of 5 and 10 year bonds at 10am UK time. This flight to safety resulted in weakness in equity markets and rallies in Japanese Yen, Swiss Franc and US Dollar. The EUR fell to its lowest level against the USD in almost a year, dropping as much as 125 points in the European session yesterday. At the open European markets have witnessed a degree of stability, but remain very much on edge over Italy.


Surprisingly President Donald Trump said he’s moving ahead with plans to impose tariffs on $50 billion of Chinese imports and curb investment in sensitive technology, ratcheting up pressure on Beijing days before the next round of trade negotiations. In a statement on Tuesday, the White House said a final list of targeted imports will be released by June 15 and the tariffs will be imposed “shortly thereafter.” It is the most specific the administration has been about the timing for the duties to take effect.


Domestically Brexit remains a major focus ahead of the June Summit. Overnight it was reported that the European Union was weighing a much stronger warning on the risk of Brexit talks collapsing without a deal if the U.K. fails to lay out its position in more detail next month. The bloc has made it clear Britain needs to show a more detailed view of how it intends to keep the Irish border open by the time EU leaders gather at the end of June -- as yet, Prime Minister Theresa May hasn’t produced the firm, written proposals the EU regards as necessary to move negotiations forward.

The day ahead

Looking at the day ahead, we have the May confidence indicators for the Euro area this morning and German inflation figures this afternoon. In the US we'll get the second revision to Q1 GDP along with the May ADP employment survey and April wholesale inventories data. The Fed's Beige Book will also be out in the evening, while the Fed is also scheduled to discuss changes to the Volcker Rule. 

Thought of the day

Sat on the tube this morning, bleary eyed, I was struck by the story that the mother of Britain's largest family is pregnant with her 21st child just months after she and her husband vowed the 20th baby would be their last. The family will welcome a girl who will be almost 30 years younger than her oldest sibling. I suspect 20 kids keep them well occupied though the parents also manage to find time to run a bakery in Lancashire, which they have owned since 1999. Similarly you may have noticed that our FX Dealing family also grew at the back end of last year with a few new names on desk. If you speak to someone different, feel free to give them a bit of context about your business and your needs. Though each client has an individual dealer, we pride ourselves on the wider desk knowing and understanding the businesses we’re looking after. If you have a moment today and fancy a chin wag, give the Investec Dealing Desk a call on 0800 055 6339. Whoever answers would love to hear more about your business and may even give fresh insight into how we can best help.

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