Swiss Franc, Yen and Dollar are the stars today as risk aversion intensifies in US session. DOW hits as low as 24938.24 and is currently down more than -300 pts. 10-year yield drops to as low as 2.210 and stays week. Most importantly, all major indices drop through recent support level, suggesting the declines started back in late April have resumed and are extending.
In our views, the reactions to news that China is weaponizing its rare earths in trade war with US are exaggerated. Though, it’s clear that there is no end in sight and the relationship will only get worse. Bigger risks to market sentiments lie ahead with China PMIs release on Friday. Probably even more so, US ISMs could show deep deterioration next week, as with Market US PMIs indicated last week.
In Europe, FTSE closed down -1.15%. DAX dropped -1.57%. CAC lost -1.70%. German 10-year yield is down -0.0173 at -0.175.
EU Finance Commissioner Valdis Dombrovskis and EU Economic Commissioner Pierre Moscovici have formally sent a letter to Italian Economy Minister Giovanni Tria, requesting explanation that the country hasn’t “made sufficient progress towards compliance with the debt criterion” of EU rules.
This is the first step the so-called excessive deficit procedure, which could result in request for “non-interest bearing deposit” of up to 0.2% of gross domestic product, or around EUR 3.5B. If Italy refuses to comply with the request as Deputy Prime Minister Matteo Salvini signalled, that would lead to a further breach of EU law.
Italian 10-year yield, currently down -0.043 at 2.647, suggests that investors are more overwhelmed by broader risk aversion.
