Euro optimism subdued on Italy budget progress
Losing ground since last Wednesday, European equities are giving signs of recovery in early trading session. Spurred by the expectations of a budget revision from Italian populist coalition, the European equities market is turning into green after having tumbled for five straight days since last week.
Indeed, despite favoring a confrontational tone and threatening to block Brussels seven-year budget plan and implementing tit-for-tat tactics, Italian Deputy PM Matteo Salvini appears opened for discussion to make revisions on the Italian budget plan, a move that might not obtain the full support and engagement of his administration.
Accordingly, despite a slight recovery of Italian bonds, with BTP-Bund 10y spreads given at 3.15% and deflating from yesterday 3.27% high, the European Commission reports on all member states’ 2019 budget (and particularly Italy) will be scrutinized with careful attention, as Brussels could implement sanctions, a move that would be counterproductive for both the single currency and EU equities.
For now, EUR/USD is coming back to neutral following yesterday drop. Currently trading at 1.1410, we would rather consider a bearish move for the pair. Heading along 1.1350 short-term.
Growth concerns weigh on stocks
Following yesterday meeting between Chinese and Philippines Presidents in Manilla, which concluded on an oil and gas offshore deal in the South China Sea in a way of further rapprochement, Asian equities have been facing further difficulties. Key headlines relating to yesterday crude oil prices drop and worries over growth outlook in EM countries pushed energy and industrials sectors to the downside. However, the bounce in Consumer Discretionary, Health Care and Tech stocks allowed Chinese shares to bounce back into positive territories. On the same trend, major US market indexes have been declining across the board, losing gains from 2018 amid further drop in tech sector, as investors remain concerned over disappointing 3Q financial reports.
Indeed, since the beginning of the year, the blue chips Dow Jones Industrial Average is looking at a performance of -1.03%, while both the S&P 500 and the tech stock index NASDAQ remain at -1.19% and +0.08% respectively. On the other side, Asian indexes remain largely behind, with year-to-date performances ranging from -5.50% (Nikkei 225) to up to -20% (China mainland Shenzhen CSI 300).
Accordingly, we expect EM markets to bounce back into positive territory as soon as US markets will be maintaining positive gains.
