August 8, 2018 / 7:41 AM / 4 months ago

Daily Briefing: Italy promises to follow all the rules

BERLIN (Reuters) - Italy’s economy minister is doing his best to reassure nervous markets about next year’s budget.

Italian flags waves at the Vittoriano monument in Rome, Italy, June 5, 2018. REUTERS/Stefano Rellandini

In a newspaper interview this morning, he has promised that the government’s plans will not run afoul of EU fiscal rules, insisted that public spending must be brought under control and reiterated that Italy remains a committed member of the euro zone.

But until the budget is finalised, investors will continue to question how the unproven coalition in Rome will reconcile these pledges with its plans for a "citizen’s income" and an overhaul of the tax system.

Ministers will continue to debate the budget behind closed doors today.

And more clues may come from Prime Minister Giuseppe Conte, who is due to hold a late-morning news conference.

Investors will also be watching closely for any sign that tension is easing between Ankara and Washington before talks between the NATO allies this week.

The lira remains under acute pressure as the U.S. threatens economic retaliation for Turkey’s detention of an American pastor.

MARKETS AT 0655 GMT

Wall Street’s super-charged earnings season nudged the S&P500 to within half a percent of January’s all-time high overnight, led by Amazon and Microsoft and by Tesla’s 11 percent surge after Chief Executive Elon Musk said he was considering taking the company private.

The VIX volatility gauge fell to its lowest level since Jan. 16 at 10.52 percent.

The upbeat mood was tempered in Asia earlier, however, as trade tensions simmered despite above-forecast Chinese exports and imports for July and reports of a fiscal boost from Beijing to soften the impact of the tariff row with the United States.

News that Washington planned to start collecting 25 percent tariffs on another $16 billion of Chinese goods on Aug. 23 left a cloud over the region.

Shanghai gave up some of Tuesday’s gains, retreating more than 1 percent, with most of the other major Asia bourses flat on the day.

U.S. and European stock futures were flat to slightly negative.

U.S. treasury yields stayed shy of 3 percent early Wednesday, despite rising overnight after mediocre demand was reported for the latest three-year Treasury auction and the 10-year sale later today.

The dollar eased back a touch too, with euro/dollar recapturing $1.16.

Euro/sterling surged to its highest level of 2018 meantime, amid growing fears of a no-deal Brexit and dovish comments from Bank of England policymakers about the trajectory of interest rates over the coming years.

People walk by a Wall Street sign close to the New York Stock Exchange (NYSE) in New York, U.S., April 2, 2018. REUTERS/Shannon Stapleton

Turkey’s battered lira fell again after a rally on Tuesday following reports of a government delegation heading to Washington to discuss the diplomatic and trade row that has blown up between the two countries.

Italian bond yields hit the week’s lows on Wednesday before a budget meeting and planned press conference that could provide further detail on how far Italy is willing to push the EU’s rules on balancing budgets.

A look at the day ahead from Europe Special Correspondent Noah Barkin and EMEA markets editor Mike Dolan. The views expressed are their own. 

Reporting by Noah Barkin, Mike Dolan

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