Most of the European markets closed in a negative territory yesterday and looking at the markets today, we do not think things aren’t going to be any different today
European markets and US futures are trading lower picking up the momentum from Wall Street. Most of the European markets closed in a negative territory yesterday and looking at the markets today, we do not think things aren’t going to be any different today. Geopolitical tensions, Italian budget woes and the ongoing standoff between the European Commission and Italy are making investors nervous. Given that there is no solution about the trade war between the US and China stand is making things a bit more arduous today.
We need to have a solution to the Italian budget. Investors are going to keep a close eye on the European Commission’s decision today about the Italian budget. The commission may end up doing something which is unprecedented- it may ask Italy to revise and resubmit its budget. It is widely expected that the commission is going to have a negative opinion about the budget, but the question is if Italy will be ready to comply with the request?
The Italian banking sector could be the primary trade here because if the Italian bond spread touched the 400 basis points, it is going to create a lot of trouble for the sector. The bond spread has already touched a five-year high of 341 basis points on Friday.
Back in the UK, Theresa May lives to fight another day while the Pound touched two weeks low yesterday and the selling pressure isn’t going away. There are chances that Britain gets out of the EU without a deal and if that scenario becomes a reality, it is likely that we may see another 10% drop for the pound. Of course, the other side of the coin is that if Theresa May does perform a miracle and secures a deal with the EU, it is likely that we may see a small rally for the pound.
As for the yellow gold, there is still a strong demand and this is keeping the price green. We are holding our target of 1250 for gold and the price could touch this level by the end of this week or early next week. The continuing tension between the US and Saudi Arabia and the lacklustre picture of the global economic growth is behind the current move.
