Italy’s political turmoil is not over
The market greeted Sergio Mattarella’s decision to reject euro-sceptic Paolo Savona as Finance Minister. After falling as much as 0.65% last Friday, the single currency bounced back on Monday morning and reached 1.1728, up 0.55% on the session. Similarly, selling pressures on Italian bonds eased significantly with the 2-year yield falling 15bps to 0.335%, while the 10-year one gave up 9.5bps and slid to 2.365%. On the equity market, the FTSE MIB jumped to 22,760 points, up 340 points or 1.50%.
By blocking the formation of the government, Italy’s president played the card of prudence as he feared it could endanger the country’s membership in the European Union. Even though, the pressure seems to have eased for now, Italy is far from being out of trouble. Indeed, both the 5-Star Movement and the League called for fresh elections, arguing that Mattarella didn’t respect the decision of the people to go with a eurosceptic and anti-establishment coalition government. Sergio Mattarella would most likely face an impeachment request from the populist parties.
Uncertainties may have eased in the short-term but in the longer-term this is a different story as the political mess may increase ahead of fresh election. For now, the single currency takes a breather as EUR/USD rose 0.40% to 1.17, while EUR/CHF climbed back to 1.16.
Risk Apppite rallies in Asia
With participants on the long weekend, liquidity in the FX markets remains low. Hence volatile news flow continues to drive pricing. In reaction to signs that the US-North Korea summit would move forward Asian currency gained across the board. In unpreceded language North Korean leader, Kim Jong Un stated he was committed to ‘complete’ denuclearization on the Korean Peninsula. In addition, Kim said he would end the history of war and bring prosperity. The sound bit was enough to send risk appetite higher despite Kims checker past with commitments. Elsewhere in Asian, Indonesian IDR rallied from a weak position as the Central bank called an additional Board Meeting 30th May. We now anticipate the central bank will make a pre-emptive strike by hiking policy rate further 25bps at this meeting to highlight commitment to currency stability.
