Euro’s Italian job not finishedBy Arnaud Masset
The euro breathed a sigh of relief, as Italy’s President Sergio Mattarella rejected the nomination of euro-sceptic Paolo Savona as Finance Minister. After falling as much as 0.65% last Friday, the single currency bounced back on Monday morning to 1.1728 USD, up 0.55% on the session. Selling pressure on Italian bonds eased, with the 2-year yield falling 15 basis points to 0.335%, while the 10-year gave up 9.5 bps to 2.365%. The FTSE MIB jumped 1.50%.
But Mattarella’s move won’t be the last. Italy is far from out of trouble. Both the 5-Star Movement and the League called for fresh elections, arguing that Mattarella didn’t respect last one’s decisions. Mattarella is meanwhile facing calls for his impeachment. Uncertainties eased in the short-term, but the political mess may increase ahead of fresh elections.
Asian risk appetite ralliesBy Peter Rosenstreich
With a long weekend in the USA and UK, liquidity in the FX markets remains low. So volatile news drives pricing. In reaction to signs that the US-North Korea summit could move forward, Asian currencies gained. North Korea’s Kim Jong Un stated he was committed to complete denuclearization of the Korean Peninsula, that he would end the history of war and bring prosperity. The sound bite sent risk appetite higher, despite Kim’s chequered past with commitments. Elsewhere in Asia, Indonesia’s IDR rallied as the Central bank called an additional Board Meeting for 30 May. We anticipate the bank will make a pre-emptive strike by hiking its policy rate 0.25%.