The euro is directly paying the price of the Italian debt crisis.
European markets are kick-starting the day on the front foot and the bulls are taking the lead shaking the negative sentiment from yesterday. This is despite the fact that a large number of investors are concerned about the Italian debt situation. As long as the Italian politicians continue to throw garbage towards Brussels, we do not think that the situation would be even close enough to a respectful resolution.
Italian deputy prime minister is reluctant to make any change in the country’s budget. His message is simple: it is what it is and no changes will be made. The euro is directly paying the price of this crisis. Despite a relief rally that we are seeing we maintain our view that it is highly likely that we may see the move towards the 14-handle or even lower under the current circumstances.
Italians are simply not ready to bow to the EU like the Greeks did. Looking back at the situation, even Greece did put up a big fight before submitting to the EU’s will. The European Commission wants the Italian government to bootstrap its expenses and start paying respect to the fiscal rules. However, the Italian government is of the mind frame that we do not need to dictated by the EU.
Back at home, the British Pound had more of a roller coaster ride yesterday and the trend remains to be intact. Boris Johnson decided to back Theresa May about her recent decision on Northern Ireland. Brexit is the most thorny issue for Sterling which is stopping the businesses to make significant decisions about their future plans. The UK construction PMI data confirmed this argument yesterday and the number showed that the economic activity has slowed to its lowest level since March. The upcoming services PMI data due later today will be something which everyone will be watching and if we see a similar message there we could see the British pound taking some beating.
Crude To Touch $80
As for the commodity market, we are seeing the oil prices relatively more stable at the current level. Of course, the bears are feeling the pain because the price of crude is trading towards its four year high because fears around supply crunch are under focus. Moreover, U.S. sanctions on Iranian oil are about to hit the market in a matter of a few weeks and nearly 2 million b/d of oil could vanish off the market if countries are going to comply according to the sanctions. There are strong odds in favour of crude oil touching the price of $80 by the end of this year and even on Wall Street, we are hearing that more and more investment banks are raising their price target for the year-end.
