Market Round Up: Clouds over Italy ☁ – Crisis week for EMs 🙊
1. Clouds looming over Italy
Few may have noticed the dramatic yield climb in the Italian government debt auction last week because all eyes were on Turkey and Argentina’s slow and gruelling currency deaths. And yet, it should have raised a lot of red flags across the world.
Duo-populist political party turbulence and wild budget plans are not helping the country with both optimists and pessimists agreeing it can only get worse, although the former does eventually see light at the end of a very dark and long corridor.
Italy’s benchmark bond yields are now only lower than Greece’s in the Euro area. Italian investors are waiting for the government to announce its spending plans, which could threaten the European Union’s deficit limit of 3% of economic output and lead to downgrades from the ratings agencies – making it even costlier for the country to raise funds. In fact, Fitch just downgraded Italy’s bonds to negative.
2. Crisis week for EMs
Sticking to the theme of governments and debt funding, events in the Emerging Markets (EM) are going to remain in the limelight this week.
Today we will see the release of Turkish inflation data and the publication of a new fiscal plan by Argentina. And Brazil could fall into further chaos following the courts decisions to ban imprisoned ex-president Luiz Inacio Lula da Silva from running in October’s presidential elections.
Investors can also expect the release of purchasing managers’ indexes (PMI) from many emerging markets, and also Chinese trade statistics. And on Friday the U.S. releases its monthly payroll data, which could be key to determining where the dollar heads after it touched a high in August.