Global equities came mostly under pressure last week due to worsening trade rhetoric and geopolitical headlines related to North Korea, while US 10y Treasury yields continued to rally. Additionally, Italy’s political turmoil weighed on risk sentiment, prompting EUR to fall and safe haven assets like JPY to rise against its major peers
Crude oil dropped last week on the back of expectations that Saudi Arabia and Russia would increase their production (Reuters).
GBP fell last week on concerns over the progress in negotiations on the EU-UK relationship post-Brexit. GBPUSD continued to drop to six-month lows this morning as London returns from a bank holiday. This week’s attention is on the UK manufacturing PMI release and any further headlines.
TRY saw its worst week of performance since the financial crisis despite the CBT ‘s decision to raise the LLW O/N lending rate by 300bp to 16.5%. Further measures included allowing exporters to repay dollar-denominated loans in TRY and today’s announcement to simplify its monetary policy.
Italian equities fell 5% and CSD widened 40bps last week as the likelihood of an M5S and Lega government increased. Tensions escalated over the weekend as Professor Conte returned his mandate to form a government, which increased the chances of new elections.
The main risk associated with a return to polls, in addition to continuation of the current political paralysis, is the escalation of electoral rhetoric against the EU.
Elsewhere in the periphery, Spain’s current minority government is looking increasingly fragile as Ciudadanos, Spain’s largest opposition party, announced on Friday that it plans to back a no-confidence vote against the current Prime Minister unless he calls a snap election.