Markets Upset By Political And Economic Turmoil In Italy

John M. Bland, MBA, co-founder,

Italian Political and Financial Crisis Roils Markets Italian political instability came to the fore at the start of the latest week and at the end of the week prior. Concern mounted as two populist parties, one right-wing and the other from the left, were negotiating to form a coalition to mount the next government. One wag said it was tantamount to Bernie Sanders and Donald Trump getting together to rule. The two parties have little in common other than frustration with the political “establishment” in Italy. This frustration is directed at the European Union (EU) government in Brussels which is seen as distant from the populace in the EU. It is this dissatisfaction that was behind the U.K. Brexit decision a year ago. Given its poor financial condition, its hard to see how Italy could follow the U.K and break free from the EU. It is said that Italy is “too big to fail” and “too large to bail out”.

. Italy has been having serious problems digesting large-scale immigration from the south and a sluggish economy which has resulted in a high youth unemployment rate. The typical prescription for Italy’s ills would be a devaluation of the Italian currency, but as a member of the Euro-zone common currency, there is no currency for Italy alone to devalue. One possibility would be for Italy to drop out of the Euro scheme, but logistically this would be extremely difficult, if not well-nigh impossible. An indication of how bad things have become is that from a level of around 1.80% at the end of April, the yield on the 10-yr Italian bond spiked to a high of 3.38% on Tuesday only to settle Thursday at below 3.00%. This recovery came after a successful government bond auction on Wednesday, reportedly after some assistance if the ECB.

At the moment, the crisis might be calming down, but none of the critical issues have been fully addressed yet. The first item on the agenda will be for Italy to form a government. Odds are this story is by no means over. Internal pressures within the EU have been having a negative impact on the Euro against its major currency counter-parts.

GVI Trading. Potential Price Risk Scale

AA: Major, A: High, B: Medium

Tue 5 June 2018

AFinal Service PMIs

A 04:30 AU- Reserve Bank Of Australia

Wed 6 June 2018

A 12:30 US- Productivity

A 12:30 US- Trade

A 14:30 US- EIA Crude

Thu 7 June 2018

A 12:30 US- Weekly Jobless

Fri 8 June 2018

A 12:30 CA- Employment

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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