Senior Market Strategist

Total Content 115

Articles 115

Italy tempers deficit plan

By David Morrison  |  03/10/2018 14:53
”Federal

The euro rallied initially after the Italian coalition government lowered its budget deficit targets. Meanwhile, Fed Chairman Powell sees little threat of inflation from low unemployment

The euro rallied today, along with European stock indices, lifted by news that the Italian coalition government may roll back its high deficit spending plans. Italian equities and government bonds had slumped after the Northern League/5-Star coalition announced last week that it was preparing to boost its budget deficit to 2.4% of GDP for the next three years to implement spending programmes promised during the General Election back in March.

But in proposing its budget plan, the government faces a showdown with the European Commission (EC). The previous Italian administration had promised the EC it would reduce spending and raise taxes to help address Italy’s crippling debt burden. The Commission is insisting that Italy progressively cut its fiscal gap to trim its troublesome debt.
But overnight the Italian newspaper Corriere della Sera reported that a revised draft budget will aim for a deficit of 2.4% next year, then 2.2% in 2020 coming down to 2.0% in 2021. The hope is the coalition is seen as honouring its election promises, while softening its two-fingered approach to dealing with the European Commission.

But this may not be enough. If the EC pushes for more, then we’re set for a showdown. My guess is Italy’s coalition won’t back down further. After all, other EU members, including Germany and France, have run rule-breaking budget deficits without punishment. Yet Italy’s high debt levels present a real problem for the European Union, particularly if yields on the country’s government bonds blow out further, raising the risk of an unmanageable rise in borrowing costs, which would threaten a default without European Central Bank intervention.

This is one of the reasons that this morning’s rally in the EURUSD wasn’t sustained. Another reason was last night’s speech from Fed Chairman Jerome Powell, the first time we’ve heard from him since last week’s Fed rate hike.

Mr Powell was upbeat about the US’s economic outlook. In this he was echoing a bullish set of FOMC economic projections from the FOMC. While the accompanying Fed statement surprised analysts by its omission that monetary policy would remain “accommodative”, the Chairman went to great lengths to explain that this term was no longer helpful, and that monetary policy was still far from being restrictive.

Last night’s key takeaway was that the Fed really isn’t worried about inflation. The central bank is convinced that low unemployment won’t spur price rises, that wage growth alone need not be inflationary and that the labour market is not overheating.  Mr Powell noted the “…Historically rare pairing of steady, low inflation and very low unemployment testament to living in extraordinary times.” But even if inflation should pick up, the Fed has said there’s been long periods with inflation below its 2.0% “symmetric” target, so it would be comfortable with an overshoot.

This has implications for Friday’s Non-Farm Payroll report, and specifically the data on Average Hourly Earnings. At +2.9% year-on-year, this came in well above expectations last month, leading observers to worry that it would feed through to inflation and cause the Fed to raise rates more aggressively than forecast. Bear in mind that a similar jump back in February was blamed for a sharp spike in volatility and a 10% correction across the major US stock indices. But if the market really believes the Fed is relaxed about wage growth, it would seem unlikely that further jump in hourly earnings will lead to another stock market rout. Maybe so. But it’s fair to say that US stock markets have pretty much ignored all bad news for most of this year while the bull market is looking long in the tooth. That’s not to say equities can’t continue to rally from here. But at some time in the future central bank tightening will remove sufficient liquidity for stock market bulls to pull in their horns and look for safer havens.
 
Any information, analysis, opinion, commentary or research-based material on this page is for information purposes only and is not, in any circumstances, intended to be an offer of, or solicitation for, a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any person acting on it does so entirely at their own risk and GKFX accepts no responsibility for any adverse trading decisions. You should seek independent advice if you do not understand the associated risks.
 

Share

Author's Other Opinion & Analysis

  • The week ahead
    By David Morrison  |  19/10/2018 12:48

    Earnings, the ECB and US GDP

  • Chinese yuan falls again
    By David Morrison  |  18/10/2018 15:08

    USDCNY highest since Jan 2017

  • The week ahead
    By David Morrison  |  16/10/2018 14:19

    What’s in store for the rest of the week

  • Gold breaks above $1,200
    By David Morrison  |  15/10/2018 15:00

    Regaining ‘safe-haven’ status?

  • Buy the dip?
    By David Morrison  |  12/10/2018 15:10

    Stocks rebound into weekend

  • Euro feeling the heat
    By David Morrison  |  09/10/2018 14:30

    Single currency busts below support

  • S&P 500 tests support
    By David Morrison  |  08/10/2018 15:02

    Investors remain cautious

  • Investors getting nervous
    By David Morrison  |  05/10/2018 14:38

    US Treasuries slump

  • EURUSD testing support
    By David Morrison  |  02/10/2018 14:20

    Single currency under pressure

  • Goodbye NAFTA, hello USMCA!
    By David Morrison  |  01/10/2018 14:30

    Canada joins US/Mexican trade deal

  • Central bank meetings in focus
    By David Morrison  |  12/09/2018 15:12

    ECB and BoE meet on Thursday

  • German DAX continues to struggle
    By David Morrison  |  11/09/2018 15:09

    Another support level broken

  • Market Round-up
    By David Morrison  |  24/08/2018 13:44

    Longest-ever US bull market

  • Longest ever US bull market?
    By David Morrison  |  22/08/2018 15:01

    US equities remain in favour

  • Focus on Jackson Hole
    By David Morrison  |  21/08/2018 14:47

    Fed Chair speaks on Friday

  • S&P 500 backs away from record highs
    By David Morrison  |  16/08/2018 15:04

    US equities not immune from emerging market contagion

  • The 'never-ending' slide in gold
    By David Morrison  |  14/08/2018 14:59

    Gold breaks below $1,200

  • S&P 500 closes in on record high
    By David Morrison  |  08/08/2018 15:11

    US equities continue to strengthen

  • EURUSD bounces off 1.1500
    By David Morrison  |  07/08/2018 14:40

    EURUSD retests support

  • Weekly Market Wrap
    By David Morrison  |  03/08/2018 14:17

    The second quarter earnings season is beginning to wind down

  • Non-Farm Payroll look-ahead
    By David Morrison  |  02/08/2018 15:11

    Payrolls expected to grow by 190,000

  • Bank of England rate decision
    By David Morrison  |  01/08/2018 13:43

    Rate hike expected

  • Fed meeting look-ahead
    By David Morrison  |  31/07/2018 15:00

    Fed expected to keep rates unchanged

  • Weekly Market Wrap
    By David Morrison  |  27/07/2018 13:37

    This article looks ahead to next week’s earnings, central bank meetings and data releases

  • A pause in gold’s decline
    By David Morrison  |  25/07/2018 14:58

    Overall trend still negative

  • S&P 500 holding above 2,800
    By David Morrison  |  24/07/2018 14:53

    Retest of highs in prospect?

  • Crude steadies after slump
    By David Morrison  |  12/07/2018 14:00

    Trade fears trigger selling cascade

  • Gold threatens to break December lows
    By David Morrison  |  11/07/2018 14:27

    Gold under pressure

  • US S&P 500 retests resistance
    By David Morrison  |  10/07/2018 14:44

    Investors shrug off tariff concerns

  • Weekly look-ahead
    By David Morrison  |  06/07/2018 14:24

    Weekly Market Wrap

  • FOMC minutes and Non-Farm Payroll look-ahead
    By David Morrison  |  05/07/2018 13:07

    US employment update this Friday

  • Crude pulls back from multi-year highs
    By David Morrison  |  04/07/2018 15:06

    Saudi Arabia prepared to raise output

  • Investors relaxed over impending tariffs
    By David Morrison  |  03/07/2018 14:19

    Dollar slips and stock indices rally

  • S&P 500 retests support
    By David Morrison  |  02/07/2018 15:22

    Equity markets under pressure

  • No respite for Sterling
    By David Morrison  |  28/06/2018 15:32

    Pound under pressure

  • EU Summit and the single currency
    By David Morrison  |  27/06/2018 15:23

    Euro under pressure

  • Investors react to fears of trade tariff escalation
    By David Morrison  |  26/06/2018 15:32

    Monday saw significant selling across global equity markets

  • Weekly Market Wrap
    By David Morrison  |  15/06/2018 15:22

    There was a broad-based sell-off across risk assets on Friday

  • Traders turn to the ECB
    By David Morrison  |  14/06/2018 07:31

    Expectations have risen that the ECB will talk of ending QE

  • Federal Reserve set to raise rates
    By David Morrison  |  12/06/2018 14:55

    The Fed concludes its two-day FOMC meeting on Wednesday

  • Weekly market wrap
    By David Morrison  |  08/06/2018 15:22

    Next week sees central bank meetings for the US, Euro zone and Japan

  • WTI breaks below trend-line
    By David Morrison  |  05/06/2018 15:30

    Both Brent and WTI crude have sold off sharply

  • Weekly market wrap
    By David Morrison  |  01/06/2018 14:29

    Friday’s Non-Farm Payroll number was much stronger than expected

  • Non-Farm Payroll look-ahead
    By David Morrison  |  31/05/2018 15:42

    This Friday sees the release of US Non-Farm Payrolls for May

  • Weekly look-ahead
    By David Morrison  |  25/05/2018 15:10

    It’s a holiday-shortened week with Bank Holidays on Monday for both the UK and US

  • EURUSD update
    By David Morrison  |  23/05/2018 15:20

    The EURUSD currency pair took another lurch lower today

  • Weekly Market Wrap
    By David Morrison  |  18/05/2018 15:26

    Traders are keeping a close eye on oil prices, the dollar and US Treasury bonds

  • Gold under pressure
    By David Morrison  |  16/05/2018 13:58

    Gold had shown remarkable resilience over the past few weeks

  • Weekly Market Wrap
    By David Morrison  |  11/05/2018 15:04

    Equities rallied last week

  • Bank of England rate decision
    By David Morrison  |  09/05/2018 14:59

    A look at Thursday's MPC rate decision

  • Weekly Market Wrap
    By David Morrison  |  04/05/2018 15:21

    Friday brought the release of the latest US Non-Farm Payroll report

  • Dollar break-out
    By David Morrison  |  02/05/2018 08:12

    Early last week the dollar broke out of several trading ranges

  • Weekly market wrap
    By David Morrison  |  27/04/2018 15:13

    The yield on the benchmark 10-year Treasury note broke above the significant 3.0% level

  • Crude weaker, but still near highs
    By David Morrison  |  25/04/2018 15:32

    Oil fell yesterday following comments from French President Emmanuel Macron

  • US dollar breaks out
    By David Morrison  |  24/04/2018 15:55

    Yesterday evening the Dollar Index broke above 90.00

  • Weekly market wrap
    By David Morrison  |  20/04/2018 15:06

    Earnings continue to get a boost on...

  • Another look at the EURUSD
    By David Morrison  |  18/04/2018 15:06

    Trump accuses China and Russia of “playing the currency devaluation game”.

  • S&P 500 update
    By David Morrison  |  17/04/2018 15:53

    The US stock market steadied last week

  • Weekly market wrap
    By David Morrison  |  13/04/2018 15:19

    The first quarter earnings season got underway last week

  • EURUSD update
    By David Morrison  |  11/04/2018 08:14

    Still range-bound near highs

  • Weekly market wrap
    By David Morrison  |  06/04/2018 15:29

    US payrolls disappoint

  • Non-Farm Payroll look-ahead
    By David Morrison  |  05/04/2018 13:48

    Tomorrow sees the latest update for arguably the most important, and potentially market-moving, global data release – US Non-Farm Payrolls.

  • S&P 500 update
    By David Morrison  |  04/04/2018 14:31

    S&P 500 breaks below 200-day moving average

  • Weekly market wrap
    By David Morrison  |  29/03/2018 13:38

    This Easter holiday couldn’t really come at a worse time

  • S&P 500 - update
    By David Morrison  |  27/03/2018 13:47

    The S&P since February's sell-off

  • Weekly look-ahead
    By David Morrison  |  23/03/2018 16:59

    Holiday-shortened week

  • NASDAQ leads sell-off
    By David Morrison  |  22/03/2018 15:53

    Markets lead lower by tech sell-off

  • Fed meeting in focus
    By David Morrison  |  21/03/2018 10:50

    Investors on edge ahead of Fed decision

  • Weekly Outlook
    By David Morrison  |  16/03/2018 15:41

    Fed meeting in focus

  • S&P 500 - the technical picture
    By David Morrison  |  14/03/2018 16:34

    This week has seen the US majors pull back from their best levels

  • Weekly look-ahead
    By David Morrison  |  09/03/2018 16:16

    The headline payroll number smashed above the high end of expectations

  • Non-Farm Payroll look-ahead
    By David Morrison  |  08/03/2018 14:30

    All eyes on wage growth

  • ECB and BOJ meetings in focus
    By David Morrison  |  07/03/2018 17:24

    Investors experienced a shock last month

  • Weekly Outlook
    By David Morrison  |  05/03/2018 10:15

    This is a big week for financial markets

  • Euro bounces, but political uncertainty remains
    By David Morrison  |  02/03/2018 11:01

    The euro rallied sharply overnight

  • Weekly look-ahead
    By David Morrison  |  23/02/2018 16:58

    US stock index futures were pushing higher ahead of Friday’s US open.

  • FOMC minutes and the German DAX
    By David Morrison  |  22/02/2018 14:33

    Investors were initially wrong-footed by minutes from a Federal Reserve meeting.

  • FOMC minutes in focus
    By David Morrison  |  21/02/2018 11:47

    All eyes are on the release of minutes from the Fed’s January FOMC meeting

  • Situation remains unresolved
    By David Morrison  |  20/02/2018 13:09

    The stock market correction may have further to go

  • Weekly Outlook
    By David Morrison  |  16/02/2018 16:02

    Global stock indices fought back last week

  • Out of the woods? Perhaps not
    By David Morrison  |  15/02/2018 13:37

    Yesterday brought the latest update on US inflation

  • Inflation and the S&P 500
    By David Morrison  |  12/02/2018 16:30

    This article will focus on the S&P 500

  • Weekly Outlook
    By David Morrison  |  09/02/2018 16:35

    Friday was a roller-coaster session to round off a tumultuous week.

  • What now?
    By David Morrison  |  08/02/2018 15:54

    The current sell-off in global equities has been a long time coming.

  • Traders focus on volatility
    By David Morrison  |  06/02/2018 16:55

    Yesterday the Dow posted its biggest ever one-day loss in points terms

  • Rising yields lift troubled dollar
    By David Morrison  |  05/02/2018 16:17

    The US dollar stages a modest recovery.

  • Weekly look-ahead
    By David Morrison  |  02/02/2018 16:12

    Equity sell-off resumes while dollar rallies

  • Time for a correction?
    By David Morrison  |  31/01/2018 16:22

    Equities retreat as yields push higher

  • Crude prices dip
    By David Morrison  |  29/01/2018 15:57

    Oil slides as dollar rallies

  • Weekly look-ahead
    By David Morrison  |  26/01/2018 15:16

    What's in store for key markets

  • Dollar hits fresh 3-year lows
    By David Morrison  |  24/01/2018 16:38

    US dollar plunges ahead of Trump's Davos speech

  • Wall Street hits fresh highs
    By David Morrison  |  23/01/2018 15:46

    The three-day US government shutdown ended on Monday

  • Market Round-up
    By David Morrison  |  22/01/2018 16:53

    Monday marked day three of the US government shutdown.

  • Weekly look-ahead
    By David Morrison  |  19/01/2018 16:30

    The last couple of weeks have seen a number of significant technical breakouts

  • S&P 500 – Weekly Chart
    By David Morrison  |  18/01/2018 15:24

    Putting price action into context

  • Crude pulls back from three-year highs
    By David Morrison  |  17/01/2018 16:32

    On Monday WTI and Brent hit their highest levels since early December 2014

  • Gold, the dollar, bond yields and inflation
    By David Morrison  |  16/01/2018 15:00

    But in line with conventional wisdom the dollar’s sell-off triggered a sharp rally in gold.

  • Weekly look-ahead
    By David Morrison  |  12/01/2018 16:50

    Earlier in the week the US majors had a slight wobble

  • Gold traders eyeing the dollar
    By David Morrison  |  11/01/2018 15:48

    This article considers the recent price action on gold

  • Chinese news rattles markets
    By David Morrison  |  10/01/2018 15:33

    Chinese officials recommend “slowing or halting”

  • Could stocks rally further?
    By David Morrison  |  08/01/2018 17:00

    Most European stock indices ended Monday’s session in positive territory, playing catch-up after Wall Street’s sharp rally last week.

  • Weekly look-ahead
    By David Morrison  |  05/01/2018 15:55

    We rounded off this week with the final Non-Farm Payroll report of 2017. Headline payrolls rose 148,000 which was well below the 190,000 increase expected.

  • Dow smashes through 25,000
    By David Morrison  |  04/01/2018 16:07

    Yesterday the US majors ended at fresh all-time highs and this helped to lift Asian Pacific indices overnight.

  • US indices hit fresh record highs
    By David Morrison  |  03/01/2018 16:08

    US stock indices made another strong upside move yesterday which took both the S&P 500 and NASDAQ Composite up to fresh record highs. The buying has continued throughout today’s session

  • Mixed start to New Year
    By David Morrison  |  02/01/2018 16:56

    The first trading day of 2018 brought a mixed session as far as global stock indices were concerned.

  • New Year round-up
    By David Morrison  |  29/12/2017 15:22

    As 2017 draws to a close, here’s a quick round-up of how a few key markets look going into next year.

  • What's Next for Crude Oil?
    By David Morrison  |  19/12/2017 14:42

    This article will focus on price action in the front month WTI contract rather than Brent. WTI tends to provide better technical signals than Brent – not always, but often enough to give a cleaner overall picture.

  • Equities soar on US tax reform hopes
    By David Morrison  |  18/12/2017 16:10

    US and European stock indices soared on Monday as investors priced in an increasing probability that President Trump will deliver on his promise of tax reform before year-end.

  • Weekly Outlook
    By David Morrison  |  15/12/2017 14:26

    Here’s a brief heads-up for the week beginning 18th December

  • Central Bank monetary policy meetings
    By David Morrison  |  14/12/2017 15:48

    Here’s a quick rundown of the highlights from this week’s monetary policy meetings from the European Central Bank, Bank of England and US Federal Reserve

  • Look-ahead to the Federal Reserve meeting
    By David Morrison  |  13/12/2017 08:49

    Crucially, this week’s Fed meeting also brings an update to the FOMC’s Summary of Economic Projections.

  • Cboe launches Bitcoin futures
    By David Morrison  |  11/12/2017 16:26

    Listing Bitcoin futures on mainstream exchanges should ultimately help to boost the digital currency’s legitimacy and lead to more widespread acceptance.

  • Non-Farm Payroll look-ahead: 6 things you should know
    By David Morrison  |  08/12/2017 09:55

    So, here’s what to look for: the consensus expectation is for the headline Non-Farm Payrolls to rise 200,000 in November.

  • EURUSD – key events to consider
    By David Morrison  |  06/12/2017 17:07

    The dollar got a boost this week on the increased likelihood of an agreement on US tax reform being reached before the year-end.

Show More Articles

Sentiment

Open a Demo Account Open A Live Account

Losses can exceed deposits

RISK WARNING

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice.

If such information is acted upon by you then this should be solely at your discretion and GKFX will not be held accountable in any way.

  • ForexF
  • IndicesI
  • CommoditiesC
        Back

        Login to Market Insight Account

        Your Market Insight account gives you access to the tools that we offer our customers including our
        Technical Studies & Sentiment for your accounts.

        Forgot Password?

        Don't you have a Market Insight account? With a few easy steps you can easily register to Market Insight

        Create a Market Insight's Account

        Your Market Insight account gives you access to the tools that we offer our customers including our Technical Studies & Sentiment for your accounts.

        register_ty

        Thank you!

        Welcome to Market Insight family!

        You have succesfully completed the registration.
        We will send you an e-mail to give you some
        instructions and our Terms and Conditions!
        Our account representatives will be contacting you as
        soon as possible. If you have any further questions
        please do not hesitate to mail us via info@marketinsight.com