Trouble in Canada - "So a busy week and so far in Asia the main story is the G7 summit. The summit ended in a war of words as Trump refused to allow US officials to endorse a planned joint communique after Canadian leader Trudeau comments in a press conference at the close of the event basically suggesting US tariffs were insulting. Mr Trump tweeted that the Canadian PM was “very dishonest & weak” and White House advisor Larry Kudlow backed him up by saying on TV yesterday that Trudeau “really kind of stabbed us in the back”. Late last night German Press also reported Chancellor Merkel as saying that the EU wont be “taken for a ride” by the US." - R. Zurrer for Money Talks
Bulletin Headline Summary From RanSquawk
- European bourses higher ahead of Trump/Kim summit and as Italy reiterates plans to stay in the Eurozone
- Sterling slides as industrial production has biggest monthly fall since October 2012 and trade deficit widens
- Looking ahead, highlights include 3- and 10-year note auctions from the US
The "most important week of the year" started off with a session that has been a study in contrasts, with risk-off trades emerging early on in Asian trading, as Asian markets and US futures slipped pressured by the higher Yen in the aftermath of this weekend's G-7 debacle which resulted in a communique that for the first time ever, was not signed by the US; concerns about a potential trade war, however, quickly morphed into optimism as investors shifted their attention to the historic summit between U.S. and North Korea as well as the meetings by three of the world’s three most important central banks, with the EUR spiking ahead of what may be the ECB's announcement that it will end QE in early 2019, while Sterling returns to center stage with tomorrow's critical Brexit vote.
The net result has been an offset of extremes, with US equity futures flat, but don't expect this to last: as Deutsche Bank's Jim reid writes, "today is actually the calm before the storm" and we’ll at least be able to monitor the fall out from the tense and quite remarkable G7 meeting over the weekend or G6 vs US meeting as it could be called.
Helping boost sentiment, Italy's new finance minister, Tria, gave a strong endorsement of the euro in comments over the weekend, prompting UBS to suggest that Italy's disagreements with the EU seem more likely to focus on immigration than on economics. Italian bonds and stocks surged while helping the Euro rise to session higher highs, after Tria told the Corriere della Sera newspaper over the weekend that there was “no discussion” of any proposal to leave the common currency and that the government would also block any market conditions that would “push toward an exit" (he would naturally say that having seen the recent rout in Italian bonds).
“This is the one of the first references on not letting the fiscal plan getting out of hand, and that the government will not let the BTP-bund spread get to the same wide level as back in 2011-2012,” Danske Bank's Arne Lohmann Rasmussen told clients. “We expect to see some stabilization in the BTP-bund spread.” And sure enough, Italian 2Y yields tumbled following renewed hope that the status quo will return to Italy.
Of course, it's only a matter of time before the Italian sentiment changes: after all for the ruling populist coalition to reach its goals, it will have no choice but to bust Italy's budget, but until then hope has returned. Among his other points in the Corriere interview, Tria said that the government will seek an EU accord that would allow the exclusion of infrastructure investment costs from the budget deficit; that a review of legislation on co-operative and small banks isn’t a priority; and that he can’t provide targets for growth and deficit before September.
As Bloomberg notes, not all are convinced that Tria’s comments warranted such a large push higher, given the challenges the new government’s fiscal program will pose to the country’s finances as debt stands at around 130% of GDP as Morgan Stanley noted recently.