Elections in Italy…Again? Another Euro Crisis?

Daily Analysis - 29/05/2018

May is closing with some interesting developments in the markets

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A string of news and geopolitics have kept the markets very busy this month. In Italy, they can’t seem to form a government and the country is poised for fresh elections. After Trump cancelled off the Summit with North Korea’s leader last week, it seems the meeting is back on. Oil wiped out all its gains made this month on the back of speculation that OPEC and Russia will step up production. The U.S. nonfarm payrolls report for May is due this Friday. It’s an important one because it’s the last before the June Fed meeting.

Risk for euro is real due to chaos in Italy


The euro resumes its tumble against the dollar this morning while Italian bonds and stocks decline. Italy’s President Sergio Mattarella rejected the appointment of a euroskeptic candidate for economy minister and put in place a new Prime Minister on Monday, asking him to form a new government. EUR/USD plunged below the key $1.16 level. Italian bank stocks were particularly hit hard. Even Spain is contributing to the euro’s decline as its Prime Minister Mariano Rajoy faces a vote of no confidence on Friday.

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Risk off sentiment boosts the yen


As risk aversion hits the markets, the yen was bid due to its safe haven status. The USD/JPY pair is currently trading below the key 109.00 level. Aside from political chaos in Europe, there is still concern regarding the unpredictability of the North Korea negotiations. Just last Friday U.S. President Trump cancelled the meeting scheduled for June but yesterday said it is back on. Gold prices have eased off slightly on the back of this news, trading just below the key $1300 an ounce level.

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Oil collapses


Crude oil has wiped out all of its gains made in May and has dropped rapidly on expectations of an increase in output levels by OPEC and Russia. WTI is now trading in the $66 a barrel level. Just last week the commodity was trading above $72. The Canadian dollar has been hit hard due to the drop in oil prices, since the loonie is a commodity price linked currency.

 

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