Today's Italian event risks
Head of FX Strategy
There are two key known event risks linked to the situation in Italy today. The one is a purported meeting between caretaker prime minister Cottarelli and Italian president Mattarella after Cottarelli's inability to form an acceptable candidate Tuesday and rumours of a late-July snap election (the prior assumption was September-October) that brought an extra wave of risk-off/euro selling.
The second event risk is also key: an auction of some €5 billion in Italian BTPs (sovereign bonds) of five-, seven- (floating,) and 10-year maturities. The market will closely watch the yield and whether the market can even absorb this issuance.
Just yesterday we saw an auction of six-month Italian sovereign paper that resulted in a yield of +120 bps and a very weak bid-to-cover ratio of 1.19 versus the prior auction’s 1.65 bid-to-cover, and a yield of negative 42 basis points.
Also, the latest rise in the euro this morning is based in part on the hope that Five Star and Lega can still form a government after it emerged that they may look to avoid a new election entirely.
Latest Market Insights
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.