Good morning,
Italian referendum impact lasts hours
The Italian shock lasted about 3 hours yesterday morning and the euro found itself stronger on the session alongside European debt and global equities. Chaos and stalemate is the status quo in Italian politics it seems and whilst the result has increased the likelihood of some form of Italian exit from the Eurozone there are many hurdles to jump before a vote is even called.
Both the leaders of the populist 5 Star Movement and the far-right Northern League have called for elections as soon as possible however. Both are positioning themselves as anti-EU and anti-Brussels.
The focus is back on to France and Hollande in the short term with French PM Manuel Valls due to resign today in order to begin his candidacy for President. He will be the Socialist party’s front runner now that Francois Hollande wisely declined to run again.
EU negotiator on Brexit to speak
The main news from Europe today will actually be about Brexit with Michel Barnier, the EU’s Chief Negotiator due to give his first Brexit press conference at 1030 GMT this morning. Whatever he says will likely provoke howls of dismay from Westminster; he can be tough or he can be tough and somewhat obstructive and the noises from the EU since the vote have pointed to the latter.
Yesterday’s run of Supreme Court debate on whether parliament should have the ability to vote on Article 50 yielded little interest. These proceedings are broadcast live and so there is an element of headline risk within the back and forth however, as we stated yesterday, there is no expectation of a decision until mid-January.
Sterling has held its ground overnight against the US dollar but has cut some of its gains against the resurgent euro.
AUD and RBA still watching China
The main mover overnight has been the Australian dollar following the latest Reserve Bank of Australia meeting that, while policy was held steady at 1.5%, noted that “some slowing in the year-end growth rate is likely”. Expectations of further cuts from the RBA are pretty sanguine through 2017 but an increase in headwinds from China, following a Trump trade battle possibly, could easily lift the chances of a 25-50bps cut in the coming months and flog the AUD as a result.
Movements, or supposed movements more crucially, had a lot of Asian trade getting worried overnight. A computer glitch at ICAP, one of the world’s largest brokers, saw USDCNY being quoted at 7.5 overnight – a near 9% devaluation. Some concern set in before the problem was fixed but we are still seeing offshore Chinese yuan (CNH) trade at a premium of around 2.5% to its onshore counterpart (CNY). Money is still flowing out of China and forward markets are pointing to further devaluation of the CNH over the course of the next 12 months.
The Day Ahead
The data calendar is very US focused this afternoon with US trade balance at 13.30 and factory orders and durable goods orders at 15.00.
Have a great day.