HomeContributorsFundamental AnalysisItalian Markets Outperform On Talks Government To Compromise On Budget Deficit

Italian Markets Outperform On Talks Government To Compromise On Budget Deficit


  • European Indices tradeshigher, with Italian stocks leading following press reports regarding a compromise budget deficit of 1.9%
  • Swedish PM Lofven ousted in no-confidence vote


  • China Commerce Ministry official said the government is considering zero tariffs on some products
  • BoJ minutes revealed that most members said appropriate to continue easing ‘persistently’


  • Reportedly Italy ruling coalition willing to keep deficit/GDP below 2% following on from earlier reports the Government heading for compromise deficit of 1.9%
  • Earlier Italy Dep PM Di Maio backtracked on statement suggesting Italy have a 2.8% deficit target
  • Swedish Social Democrat leader Stefan Lofven was ousted (204 of 349 voted against PM)
  • ECB Chief economist Praet downplays tone of Draghi’s speech on Monday, noting that there was nothing new in speech and right for market reaction to have reverted
  • French September business confidence comes in ahead of forecasts while Manufacturing confidence lags; own-company production outlook indicator fell much further than forecasts

Economic Data:

  • (PL) Poland Aug Unemployment Rate: 5.8% v 5.9%e
  • (AT) Austria Q2 Final GDP Q/Q: 0.3% v 0.5% prelim; Y/Y: 2.7% v 2.3% prelim
  • (SE) Sweden Aug PPI M/M: 0.0% v 0.9% prior; Y/Y: 9.3% v 8.4% prior
  • (AT) Austria July Industrial Production M/M: -0.1% v -0.4% prior; Y/Y: 4.8% v 6.7% prior
  • (ES) Spain Aug PPI M/M:0.5% v 0.4% prior; Y/Y: 5.2% v 4.6% prior
  • (DE) Germany Aug Wholesale Price Index M/M: 0.3% v 0.1% prior; Y/Y: 3.8% v 3.6% prior

Fixed Income Issuance:

  • (IT) Italy Debt Agency (Tesoro) sells €1B vs €0.75-1.0B indicated in I/L 2032 Bonds (BTPei):Avg Yield: 1.65% v 0.76% prior; Bid-to-cover: 1.72x v 1.93x prior
  • (CH) Switzerland sells CHF360.8M in 3-month Bills; Yield: -0.841% v -0.853% prior



  • Indices [Stoxx50 +0.3% at 3,419, FTSE +0.3% at 7,482, DAX +0.2% at 12,373, CAC-40 +0.2% at 5,486, IBEX-35 +0.4% at 9,550, FTSE MIB +0.5% at 21,450, SMI +0.3% at 8,972, S&P 500 Futures +0.1%]
  • Market Focal Points/Key Themes: European indices open higher across the board and remained positive as the session progressed; UK and Italy better performers on Brexit and budget outlook, respectively; crude prices support energy stocks; consumer discretionary among the underperformers; Israel closed for holiday; CMC Markets issues profit warning, dragging on retail trading stocks; Next Group raises outlook, supporting UK supermarkets; earnings expected in the upcoming US session include Jabil and Manchester United


  • Consumer discretionary: Card Factory CARD.UK -1.9% (results), Intertrust INTER.NL -2.9% (placement), Low & Bonar LWB.UK -25.0% (outlook), Next NXT.UK +7.9% (raises outlook)
  • Consumer staples: Imperial Brands IMB.UK +0.5% (trading update)
  • Energy: Amerisur Resources AMER.UK -14.6% (operational update)
  • Financials: CMC Markets CMCX.UK -12.0% (profit warning)
  • Healthcare: Argenx ARGX.BE +4.7% (analyst action)
  • Industrials: Evonik EVK.DE +0.9% (placement), Leonardo LDO.IT +3.1% (order)
  • Materials: Glencore GLEN.UK +2.4% (increases buyback program)
  • Technology: Fugro FUR.NL -2.0% (New CEO), WANdisco WAND.UK -11.1% (results)


  • (EU) ECB’s Praet (Belgium, chief economist): Pickup of growth, prices need further accommodation; there was noting new in Draghi speech on Monday, right for market reaction have reverted after speech – at streamed FT Event in London
  • (IT) Reportedly Italy ruling coalition willing to keep deficit/GBP below 2% – press
  • (JP) Japan BOJ Gov Kuroda: Reiterates will take longer than expected to meet price goal – Text of speech in Osaka
  • (FR) France Fin Min Le Maire: EU states not backing digital tax lack courage; EU must decide now on Digil tax
  • (PL) Poland’s Central Banker Lon: Polish rates should stay steady throughout MOC’s term
  • (JP) Japan BOJ Gov Kuroda: Revion of frward guidance is possible; If guidance changes, will depend on conditions at the time
  • (DE) Germany BDI Industry Body Kempf: US/China trade dispute not having major effects on German companies yet, but is causing enormous uncertainty
  • Opec Sec Gen: Oil will have predominant role in the Energy mix in the foreseeable future
  • (UK) Opposition Labour Party Brexit motion: ‘No deal’ should be rejected as viable option, calls on Labour lawmakers to ‘vigorously’ oppose any attempt by the government to deliver no deal outcome
  • (UK) German Chancellor Merkel: UK Exit deal possible in October or Novemeber; Not clear exactly what Britain wants


  • EURUSD softened slightly after comments from ECB’s Praet noting that comments from Draghi yesterday were nothing new. The pair fell 30 pips to a low of 1.7133 following the comments before fading the move.

Fixed Income

  • Bund Futures trades at 158.10 down 19 ticks on optimism for Italy. Resistance moves to 161.82 then 163. A downside break of 158.25 sees 157.69 initially.
  • Gilt futures trades at 120.45 down 19 ticks following the move in Treasuries. Continued support at 120.50, with a continued move higher targeting 123.93 then 124.00.
  • Tuesday ‘s liquidity report showed Monday’s excess liquidity rose from €1.861T to €1.850T. Use of the marginal lending facility stayed rose from €21M to €563M.
  • Corporate issuance saw 3 high grade issuers raise $4.1B in the primary market

Looking Ahead

  • 05.30 (UK) Weekly John Lewis LFL sales data
  • 07:00 (BR) Brazil Central Bank (BCB) COPOM Minutes
  • 07:00 (BR) Brazil Sept FGV Construction Costs M/M: 0.2%e v 0.3% prior
  • 07:30 (CL) Chile Central Bank Traders Survey
  • 07:45 (US) Weekly Goldman Economist Chain Store Sales
  • 08:05 (UK) Baltic Dry Bulk Index
  • 08:55 (US) Weekly Redbook Sales
  • 09:00 (EU) Weekly ECB Forex Reserves: € v € prior
  • 09:00 (US) July S&P/ Case-Shiller 20-City M/M: 0.10%e v 0.11% prior; Y/Y: 6.20%e v 6.31% prior; House Price Index (HPI): No est v 213.07 prior
  • 09:00 (US) July S&P Case-Shiller (overall) HPI Y/Y: No est v 6.24% prior, Overall HPI Index: No est v 204.48 prior
  • 09:00 (US) July FHFA House Price Index M/M: 0.3%e v 0.2% prior
  • 09:00 (MX) Mexico July IGAE Economic Activity (monthly GDP) Y/Y: 2.6%e v 1.2% prior
  • 10:00 (US) Sept Consumer Confidence: 132.0e v 133.4 prior
  • 10:00 (US) Sept Richmond Fed Manufacturing Index: 20e v 24 prior
  • 16:30 (US) Weekly API Oil Inventories
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