Market movers today
It is another quiet day in terms of data releases, and hence markets will focus on the implications of the EU vote in different countries.
In the UK, both the Labour and Conservative parties are digesting the poor EU elections. Signs from the labour Party of supporting a second referendum will be interesting and the leadership candidates from the conservative party are lining up, with Brexiteers such as Boris Johnson among the favourites, prompting a weakening of GBP.
In Italy, EU is rumoured to launch an EDP procedure against the country in early June over the 2018 fiscal outcome, which could prompt reactions from the Italian government.
The Hungarian central bank (the MNB) will announce its policy rate decision. We expect that this time the MNB will again leave the rate unchanged at 0.90% despite core inflation climbing to the upper bound of the central bank target on brisk economic growth and double-digit wage expansion. However, it may implement another hike of the overnight depo rate and further cuts in FX swaps as a tool for liquidity tightening.
Selected market news
Trading in Asian stocks was thin and gains moderated following advances of the European stock market. The calendar was light and the US market was closed for Memorial Day, and also the UK market was off. Europe saw relief on the EU parliamentary election results, while worries on political withstand in the EU eased.
Markets did not move significantly on US President Donald Trump’s announcement that the US was not ready to reach a trade deal with China. Trump also added that tariffs on Chinese goods “could go up very, very substantially, very easily.” Yet, Japan’s minister of economy said that Trump signalled during his visit to Japan that there could be an announcement on trade in August.
A Bloomberg story pictured yesterday afternoon that the European Commission is considering proposing a disciplinary procedure against Italy next week over its failure to rein in debt, which could impose a EUR3.5bn fine. The step could come as part of the EU’s regular budget monitoring process, most likely on 5 June, and would mark an escalation of Rome’s budget tussle with Brussels that roiled markets at the end of 2018. Yet, the final decision on further fines may not come for months, after Italy is given time to correct its finances. The EU has never fined a country over its budget. The news weighed heavily on the EUR, as the EUR/USD traded 0.3% lower this morning from its highs yesterday, while Italian yields rocketed.
