Daily Commentary BY THE CURVE TEAM –

Italy Forms A Government As Trump Goes On The Offensive

1st of May, 2018

Just as the Italians seem to have sorted out their differences and are finally moving forward, President Trump went back on the offensive over trade tariffs. Elsewhere yesterday’s local data was a little softer than expected and a ‘too big to fail’ global lender was placed on the Troubled Lenders list in the US.

Concerns over Italy and the threat they pose to the future of the Eurozone have eased with a Government finally formed to take the country forward. It has seen Italian bond retrace more of their surge and the Euro remains well off its lows for the week.

While tensions surrounding Italy have eased, Europe is once again in the firing line, along with Canada and Mexico, as President Trump goes on the trade tariff offensive once again.

It appears that President Trump is getting impatient with negotiations and is withdrawing the temporary exemption of the previously announced steel and aluminium tariffs on NAFTA partners, Canada and Mexico, as well as Europe.

The announcement has draw widespread criticism, from politicians, economists and market commentators alike. While many see it as another negotiating tactic by the administration, the tit for tat retaliations will only act to provide more uncertainty for global markets. Trump’s administration is starting to look stretched as it continue to fight battles on a number of fronts.

The Capex data was a little softer than expected for Q1. Yesterday’s release showed that the amount of work completed rose 0.4%, less that the 1% rise that was expected. More importantly, the outlook for capex, while still positive, was trimmed a little.

Private sector credit was also released yesterday and showed that the rate of growth in outstanding credit continues to slow. The key from the release was the ongoing precipitous fall in the growth rate in Broad Money. The annual rate has fallen from its recent high of 7.8% last June to 2.6% in April and goes someway to explaining why funding markets are starting to tighten up.

Finally something to keep an eye on was the addition of Deutsche Bank to the list of troubled lenders in the US overnight. The Bank’s share price was already under pressure and the latest news hasn’t helped. With such a large exposure to derivatives, a falling share price places its capital base under pressure and people are starting to take notice. It’s early days but something to keep on the radar.

The data flow keeps coming tonight with the all important nonfarm payrolls report in the US. Expectations are for another solid outcome but the focus will remain on the wages data.