Market movers today
Focus today will remain on Italy after yesterday’s official response to Italy’s 2019 budget (see below). While it is still early days to see another blink from Italy (after Tria’s comment on spread widening last week), markets will not take this letter well and it will weigh on market sentiment. It is a quiet day on the economic data front.
In Scandinavia, today’s key release is the Norwegian Q3 business tendency survey, where we will look especially look at how manufacturing orders are faring (see next page).
Selected market news
Yesterday evening, EU Commissioner Moscovici and EC Vice President Dombrovskis sent a letter to Italian Finance Minister Tria for clarification of the ‘obvious significant deviation’ of the stability and growth pact in the 2019 budget that they submitted on Monday. This is the first official response from the EU to the worrying Italian budget. Italy has until Monday at noon to reply to the letter, but given the letter and the proposed budget, there is no reason to turn positive on Italy just yet, which will weigh on the BTPs. Further to this, ECB President Draghi is said to have expressed that there is no leeway towards Italy on the European rules during the EU summit yesterday.
Risk-off dominated on global markets, while there was no clear major driver behind it. Chinese stocks fell significantly, while the USD/CNY climbed closer to 7.00, its highest level since late 2016. European and US credit spreads widened as stock markets slid, accompanied by declining yields in Germany and the US. In light of escalating discussions around the Italian budget, periphery spreads widened notably. The EM FX universe was also under pressure on the strengthened USD.
