Euro Suffers From Concerns About Italian Budget Deficit

Market Reviews

Euro declined due to prolonged worries about the Italian budget deficit. Italian politicians set the ratio of deficit to GDP in 2019 at a preferred level, which was much higher than the reasonable target proposed by the country's finance minister. The budget law for 2019, which Parliament will be asked to approve in the coming months, is likely to lead to an even higher government deficit. At the moment, the European Commission has rejected Italy’s budget plans.

The British pound turned mixed after another Brexit rumor faded without follow up news. Yesterday it was reported, that UK Prime Minister Theresa May prepared for the EU a new proposal for Brexit, which could help the sides agree.

Canadian dollar remains steady after the US and Canada have reached a new trade deal called the US-Mexico-Canada Agreement, or USMCA, which will replace the North American Free Trade Agreement (NAFTA).

Australian dollar is also firm after the RBA kept monetary policy unchanged and published a neutral statement, as widely expected. The regulator hinted again that it’s in no rush to rate hike. RBA also reiterated that risk to global outlook from “direction of international trade policy in the United States.”

On stock markets, DOW closed up 0.73% at 26551.21, boosted by the USMCA news. S&P 500 hit as high as 2937.06 but ended up only 0.36% at 2924.59. Nasdaq closed down 09.11% at 8037.30. In Asia, Japanese Nikkei gained 0.46%. Singapore Strait Times dropped by 0.19% and Hong Kong HSI lost 1.64%.

Eric Rosengren (Boston Fed President) warned that tight labor market could push the economy towards unexpected inflation and other problems. He argued that the Federal Reserve should continue rate hikes “until monetary policy becomes mildly restrictive.”

IMF Managing Director Christine Lagarde hinted yesterday that the Organization may downgrade global growth forecast next week. She said, “In July, we projected 3.9% global growth for 2018 and 2019. The outlook has since become less bright, as you will see from our updated forecast next week.”