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US Open Preview – Euro continues to struggle amid Italian political risks; European stocks rise
March 5, 2018 1:26 pmVideo
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Here are the latest developments in global markets
Day ahead: Italian political developments in focus; RBA decides on interest rates during the Asian session
Political updates in Europe will be in the spotlight during the coming days following an inconclusive election in Italy which increased Eurosceptic voices, despite an expected coalition deal in Germany.
On Sunday, Italian exit polls showed that no party had enough votes to form a majority government as anticipated but gave a lead to anti-EU parties, pointing to a period of political instability in the third largest EU economy. The anti-establishment Five Star Movement (M5S) gained 29-32%, above the 20.5% won by the pro-EU center-left Democratic party, while Berlusconi’s center-right Forza Italia and the anti-immigration League party were said to attract only 13-16% of the votes, leaving room to the M5S to negotiate a position in the government. According to the media, the Italian Parliament will meet on March 23, while formal talks are not expected to start until early April. The Italian constitution does not specify any time limit for the parties to deal an agreement or settle new elections.
Brexit uncertainties are also back on the cards and are expected to weigh on market sentiment as the gap between the EU and the UK doesn’t seem to be getting narrower after the UK Prime Minister backed Brexiteers last week, rejecting EU proposals to retain custom union rules in Northern Ireland. However, during her speech on Friday, she expressed some ideas on how to maintain a softer border with the Irish Republic.
Central bank meetings will be of greater interest this week, with the Reserve Bank of Australia being the first in line to decide on interest rates early on Tuesday (0330 GMT). However, for once again policymakers have no intention to tighten monetary policy, keeping rates at a record low of 1.5% given the sluggish inflation and the overloaded household debt. The Bank of Canada, the European Central Bank and the Bank of Japan will announce their own decisions later in the week ahead of the famous US nonfarm payrolls due on Friday.
Concerns over a potential trade war between the US and the rest of the world, triggered by Trump’s announcement of punitive import tariffs on aluminum and steel last week, may continue to restrict any stock market gains. China, the world’s biggest exporter, has already claimed that it doesn’t want a trade war with the US, but it will respond accordingly if the measures harm its interests.
Looking at today’s economic calendar, data releases will be relatively light, with the US reporting ISM non-manufacturing PMI for the month Of February at 1500 GMT. Forecasts are for the index to decline by 0.9 points to 59.0, remaining safely above the threshold of 50 which separates growth from contraction.
As for the speakers, Fed Board member Randal Quarles (voter) is due to deliver remarks at 1815 GMT. In the UK, Finance Minister Philip Hammond will appear before Parliament to discuss the government’s plans for leaving the EU.
In energy markets, a meeting between major US shale firms and OPEC oil ministers will be closely eyed, amid expectations that the two sides could coordinate in order to prevent another oversupply crisis.
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