· The euro was buried near multi-month lows against major rivals on Wednesday as Italy’s political crisis deepened, raising the likelihood of an early election that some market players fear could lead to a eurosceptic government in Rome.
Sources close to some of Italy’s main parties said there was now a chance that President Sergio Mattarella could dissolve parliament in the coming days and send Italians back to the polls as early as July 29.
The euro, which slipped to a 10-month low of $1.1510, on Tuesday, and last stood at $1.1573, little moved in Asian trade. It has fallen 4.5 percent so far this month.
The 10-year Italian government bond yield jumped to 3.19 percent as bond prices fell, versus just under 2 percent around two weeks ago.
The dollar’s index against a basket of six major currencies stood at 94.631, near the technical double-top around 95.15 touched in October and November last year.
It had hit a five-week low of 108.115 yen the previous day as the risk-averse mood boosted the Japanese currency.
· China on Wednesday lashed out at Washington’s unexpected statement that it will press ahead with tariffs and restrictions on investments by Chinese companies, saying Beijing was ready to fight back if Washington was looking to ignite a trade war.
· Germany’s jobless numbers dropped more than expected in May, pushing down the unemployment rate to a record low, data showed on Wednesday, reflecting the robustness of a labor market that has become a key driver of a consumer-led upswing.
The Federal Labor Office said the seasonally adjusted jobless total fell by 11,000 to 2.358 million. That compared with an expected drop of 10,000 forecast in a Reuters poll.
The unemployment rate fell to 5.2 percent in May, the Office said. That was the lowest since German reunification in 1990.
"Italy's economy is 10 times larger than that of Greece, whose debt crisis shook the euro area's foundations," wrote Desmond Lachman, a resident fellow at the American Enterprise Institute, in a recent blog post. "The single currency is unlikely to survive in its present form if Italy were forced to exit that monetary arrangement."
· Political chaos in the eurozone's third-biggest economy won't be going away anytime soon, according to International Monetary Fund former chief economist Olivier Blanchard, who on Tuesday issued an ominous assessment of the country.
Panic roiled markets Tuesday as a political fight in Italy prompted one of its worst market sell-offs in years. Underlying investor fear was the prospect of Italy leaving the euro and others following suit, which Blanchard, now an economics professor at the Massachusetts Institute of Technology, described as more of a psychological fear than a realistic threat.
The potential concern, rather, involves Italy's creditors, who would have to "move carefully," the economist told CNBC's Joumanna Bercetche in Paris. The rest of Europe may avoid a domino effect, but Italy looks to remain mired in a quagmire.
"I suspect in this case the EU will do whatever is needed to prevent contagion, so I'm not terribly worried about contagion," Blanchard said. "I'm very worried about Italy. Not worried about the rest of Europe. It will be tough, but the rest of Europe, the rest of (the) euro will be OK."
Italy has the highest debt in the euro zone, which at 132 percent of GDP is twice that of Germany's and far above the euro zone's 87 percent. It also has a raft of bad loans in its banking sector.
Markets were already nervous about M5S and Liga's economic plans for Italy. Though the parties did not in fact pledge to leave the euro, they signaled a disregard for the EU's fiscal rules, such as those limiting states' deficit levels. The parties' leaders have pitched plans to cut taxes, boost public spending and introduce guaranteed basic income, among other costly proposals.
· Germany’s Chambers of Industry and Commerce (DIHK) on Wednesday lowered its 2018 growth forecast for the German economy to 2.2 percent from 2.7 percent previously, citing widespread uncertainty.
· Tariffs on steel, threats of car import levies and intense pressure for a two-way economic deal: despite warm personal ties, U.S. President Donald Trump is giving Japanese Prime Minister Shinzo Abe a decidedly tough time on trade.
· Oil prices steadied on Wednesday after falling steeply in recent days on concerns that Saudi Arabia and Russia will pump more crude in the second half of the year in response to falling global crude inventories and rising consumer prices.
Saudi Arabia and Russia have discussed raising OPEC and non-OPEC oil production by 1 million barrels per day (bpd) to counter potential supply shortfalls from Venezuela and Iran.
Brent crude LCOc1 clawed back early losses to be up 1 cent at $75.40 a barrel by 0619 GMT, after trading as low as $74.81 a barrel.
U.S. West Texas Intermediate crude CLc1 was up 10 cents, at $66.83 a barrel, having touched a session low of $66.35 a barrel. WTI fell more than 7 percent in five previous sessions.
· Crude oil prices didn’t find lasting traction as risk aversion roiled financial markets. The sentiment-linked WTI benchmark sank as US shares picked up on the negative lead from Europe but follow-through didn’t materialize, with prices swiftly rebounding to close the day little-changed.
Traders may have been leery of overextending on the downside following Friday’s brutal selloff until OPEC and its allies in a production cut scheme settle on a common message. Russia and Saudi Arabia have hinted at relaxing output curbs but other producers (like Ecuador) have voiced opposition to doing so.
Looking ahead, crude oil volatility may be reanimated as API inventory flow data comes across the wires. The outcome will be judged against expectations of a slight 500k barrel outflow projected to appear in official DOE statistics published Thursday.
A monthly report on supply trends form the EIA is also due. That may show that swelling US output is already poised to undermine OPEC-led supply cut efforts as they are. Layering that on top of any Saudi- and Russia-led production increase might be seen as justifying an even lower oil price level, reviving selling pressure.
Reference: Reuters, CNBC
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