If you like to witness higher volatility in the fixed income space, look no further than Italy. Last week, the Italian fixed income market suffered from the worst weekly performance going back all the way to the Eurozone crisis. This is a big statement, because during the Eurozone crisis there was some serious panic among investors as the eurozone’s economy was on the verge of collapse. Looking at it today, it is in a much healthier condition, well, at least from the economic perspective.
But, yes, the political situation over in Italy that we have today is an immensely messy situation and the fear of another Brexit is shaking the investor’s confidence. Surely, no one wants to see the third biggest economy of the Eurozone becoming another Greece or adopt the stance which the U.K. choose.
The rating agencies have been more active because of the Italian situation. This activeness has created more panic than calm for investors. The rating agencies have raised alarms about the current situation in Italy.
Under the circumstances, we do think that Italy needs a good leader who can put a leash on both parties; The Five star movement and the League. Hence, some old leaders like Silvio Berlusconni may use the current situation in their favour and the Euro leaders may actually side with him to just to keep Italy working.
In the oil market, over supply anxieties are impacting the price of oil. This has pushed the price of oil from its multi year highs. Iran would have to think about reducing its oil production and if it cannot sell its oil due to the sanctions by the US, Russia and Saudi Arabia are going to step in to take advantage of the situation.
Saudi Arabia, the biggest player in the OPEC cartel, is sitting on massive spare capacity and it alone can fill in the gap without moving a muscle, but it is important for them to bring Russia on board. What you do not want is the allies falling apart over some small supply of oil. So, share the piece of the pie. I think any need which would materialise from here onwards in terms of increasing the supply cut may have a limited move but it could spiral if the supply equations starts to outweigh demand.
On the other hand, if both countries decide not to play with the loss of supply and leave the situation as its is, we would expect a larger move for the oil price.
As for the precious metal, geopolitical uncertainty has supported the price of gold but the stronger dollar once again has pushed the price lower. Also, hopes around the US and North Korea summit back on track, has impacted the gold price adversely.
