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The Italian Job

| Posted by: Paul Donovan | Tags: Paul Donovan

  • Everyone needs to take a deep breath and calm down. Only then can we talk about Italy. 1) Bond market moves do not break up monetary unions. Bank runs do. There is no evidence of bank runs. 2) Neither Italian parties nor Italian voters support leaving the Euro. 3) The anti-party coalition was not expected to last, because of policy disagreements. It is not certain that the two anti-parties would try to form a government after elections.
  • Markets have moved anyway. We are now in that phase where any trader who overheard a conversation in their local Domino's Pizza takeaway considers themselves an expert on Italian politics. Investors would be wise to treat recent market moves with caution.
  • Meanwhile US President Trump has decided to increase taxes on US consumers, having previously tweeted against doing so. A 25% tax on USD 50bn of goods partially made in China is to go ahead. (This is not a trade war, not even close). This is probably the last tax increase Trump can impose without the US consumer realizing that they are being taxed.
  • There is some economic data today. It is quite important (inflation in Europe, revised GDP in the US). Probably only economists will notice.