Morning Commentary: The Italian Job

A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.

The Italian Job Share this story: Andrew Kositkun Foreign Exchange Head Trader

Deputy Prime Minister and League leader Matteo Salvini has announced that his party has withdrawn its support of the coalition government.  This announcement means the current government no longer holds a majority in Parliament and opens the door for new elections.  In response, Italian bonds have sold off sharply, and Italy’s banking sector stock index has hit its lowest levels in three years.    Italy’s coalition government has had a rocky 14-month alliance with one of the more interesting questions being why Salvini waited this long.  According to current polling, Salvini is favored to be installed as Prime Minister of the new government.  However, current PM Giuseppe Conte continues to be defiant, encouraging those hoping an anti-Salvini coalition can survive long enough to pass next year’s budget; this sets Italy up for a bout of political uncertainty.  Ultimately, we hold the view that snap elections are more likely than an alternative government or a government reshuffle.        Over in the UK, Q2 GDP disappointed by coming in at -0.2% QoQ versus expectations for a 0.0% print.  This contraction represents the first negative GDP growth result since the second quarter of 2012.  The biggest driver of the fall in GDP was the drop in inventory as companies worked down inventory built up ahead of the original deadline.  Currently, a modest recovery is expected in Q3, but the pace of growth is starting to show strains from the weight of Brexit and a slowing global picture.  Should Q3 also show contraction, the UK would be pushed into a technical recession.  HERE ARE THE KEY NEWS STORIES FROM OVERNIGHT: German exports fell -0.1%, adding yet another element to the economic headwinds in Europe.  Year-over-year exports have now fallen 8%.  UK election risks have ticked higher on media reports that PM Johnson plans on calling an election in November after delivering a no-deal Brexit.  Opposition leader Corbyn will seek to question the legality of this sequence of events.  RBA Governor Lowe delivered his semi-annual testimony confirming an easing bias but didn’t express an urgency to ease.  The AUD is currently up on the session as the markets had very dovish expectations going into the testimony.  Japanese GDP rose 0.4% versus expectations for a 0.1% rise.  Investment and consumption were both strong.  This positive result increases the odds of a sales-tax hike in October. The Canadian jobs report disappointed with the economy losing 24.2k jobs against expectations for a 15k gain.  The unemployment rate also increased to 5.7% from 5.5%.  This report supports the narrative of slowing Canadian growth as the strong Q2 was supported by temporary factors and global growth continues to slow.

If we can help you with any Foreign Exchange needs, please email foreignexchange@cnb.com or call (800) 447‑4133. Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!

Follow City National Bank on social media:

Non-deposit investment products: • Are not FDIC insured, • Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and • Are subject to investment risks, including possible loss of the principal invested. This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.

Unsubscribe from this list  |  Update email preferences This message has been sent to bank@banking.offers.report. Please do not reply to this email. To ensure the delivery of future emails, please add foreignexchange@emails.cnb.com to your email address book or safe sender list. Copyright ©2019 City National Bank – All Rights Reserved. 350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071 City National Bank is a subsidiary of Royal Bank of Canada. TERMS & CONDITIONS  |  PRIVACY STATEMENT NMLSR ID# 536994 | City National Bank Member FDIC