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Italian politics back on the menu

  
  Analysis

Political fracture in Italy is nothing short of the norm these days and while Draghi’s reign as prime minister has been promising early on, we are seeing the same failings resurface ahead of the national election due in the first half of next year.

The Five Star Movement party is holding leadership talks today and as support for their party wither, they need a change to stay relevant and most key party figures are pointing towards breaking away from the current government coalition.

A recent split has seen the party lose a chunk of its support with many lawmakers joining a breakaway group led by Luigi Di Maio, a former leader of the Five Star Movement party. Those who have stayed on are urging for a change – blaming Draghi for watering down flagship measures that have been key pillars of the party.

The issue here is that if Five Star Movement pulls out, there is going to be a ripple effect. Matteo Salvini’s Lega party is adamant that they will not back the government if Five Star Movement withdrew from the coalition.

Meanwhile, that will also create a bit of a divide with the Democratic party – who at least still seems to be wanting to back Draghi and the government.

In any case, the wheels are set in motion already and if leadership talks this week for Five Star Movement result in a push away from the government, we could see election risks brought forward for Italy.

IEA warns that global oil inventories remain critically low

  
  Analysis
  • Strong policy intervention needed on energy use
  • Or else the world economic recovery will be at risk
  • High fuel prices has dented oil consumption in OECD but developing countries saw rebound
  • Higher prices, deteriorating economic environment have started to take a toll on demand

Just a bit of elaboration on both sides of the story in the oil market right now. All things considered, oil is still keeping rather resilient and though prices have come off recently, the technicals are still holding on. WTI crude is still keeping afloat at support around $95 with the 200-day moving average also providing some assistance today:

Inflation data highlights the agenda in Europe today German, French, Spanish final consumer inflation reports for June to be released

  
Analysis, Economy

It’s a quieter start to the new day with major currencies not doing a whole lot and equities being little changed. The mood is likely to keep that way as all eyes are on the US CPI data later today.

The RBNZ delivered on expectations by raising its OCR by 50 bps to 2.50%, with the decision earlier here. The Bank of Canada is set to continue the central bank bonanza this month by hiking rates by 75 bps to 2.25% later today.

After briefly touching parity yesterday, EUR/USD saw a slight pullback as the dollar also ceded some ground. But in the grand scheme of things, the greenback remains in good stead as risk tones continue to look fairly sluggish so far this week.

A deeper inversion in the US 2s10s could also be something to be wary about as markets start to identify with stronger indicators of a recession. But all else being equal, there will be a slow churn towards key central bank meeting decisions next week (BOJ and ECB) and later in the month (Fed).

Looking ahead today, euro area inflation data will help to move things along but expect markets to stay focused on what the US CPI data has to offer before committing to any further moves this week.

0600 GMT – UK May monthly GDP data
0600 GMT – Germany June final CPI figures
0645 GMT – France June final CPI figures
0700 GMT – Spain June final CPI figures
0900 GMT – Eurozone May industrial output
1100 GMT – US MBA mortgage applications w.e. 8 July

That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading! Stay safe out there.

Germany July ZEW survey economic sentiment -53.8 vs -38.3 expected

  
Analysis, Economy

  • Prior -28.0
  • Current conditions -45.8 vs -34.5 expected
  • Prior -27.6

Slight delay in the release by the source. That’s a significant miss as ZEW notes that the combination of concerns about energy supply in Germany, the ECB’s planned rate hikes and further pandemic-related restrictions in China have led to a considerable deterioration in the economic outlook.

ICYMI – World Health Organization (WHO) has identified a new “stealth omicron” strain

  
Analysis, COVID-19

An update on this ICYMI, like I did. The WHO says the new strain is feared to be more transmissible and evasive than previous variants.

  • Officially named BA.2.75
  • nicknamed “Centaurus”
  • has been found in 10 countries, including Australia, Canada, Japan, New Zealand, Germany, the United States and the United Kingdom
  • the WHO has not yet labelled it as a variant of concern
  • transmissibility, severity, and potential for immune evasion are currently unknown
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