May 22, 2018 / 7:46 AM / in 5 months

Daily Briefing: Giuseppe Conte - Italy's premier choice?

LONDON (Reuters) - Has Italian President Sergio Mattarella baulked at the prospect of appointing political novice Giuseppe Conte as the country’s next prime minister?

FILE PHOTO: 5-Star Movement leader Luigi Di Maio shakes hands with Giuseppe Conte during the presentation of the would-be cabinet team ahead of elections in Rome, March 1, 2018

In any case he has decided to hold further discussions about the nomination of the little-known law professor by 5-Star and League. Conte is an underwhelming choice on a number of fronts.

The two parties themselves had always stressed that the premier position should go to a politician with ballot box legitimacy rather than a mere technocrat. And Conte’s lack of experience suggests he would struggle not only to keep an untested coalition together but also to defend his government’s controversial spending programme in Brussels to wily EU operators like Germany’s Angela Merkel. Mattarella is set to hold more meetings this morning.

Facebook CEO Mark Zuckerberg faces questions in the European Parliament today after the scandal over its sale of data to a British consultancy that worked on U.S. President Donald Trump's election campaign and others. Initial arrangements to hold the encounter behind closed doors sparked complaints and Facebook has now confirmed it is "looking forward to the meeting and happy for it to be live streamed."

Zuckerberg emerged largely unscathed from 10 hours of U.S. congressional hearings last month during which the technological illiteracy of many of his interrogators was on display, often embarrassingly so. Let's see if EU lawmakers are any more tech-savvy.

It will be a low-key re-start of formal Brexit negotiations in Brussels today. Talks will focus on remaining separation issues and also broach the future relationship between the UK and EU, a deal on which is due to be in place for October. But Brexit Minister David Davis himself will not be present for the UK side, at least for the start of talks.

MARKETS AT 0655 GMT

Financial markets worldwide remain uneasy as the pressure from a rallying dollar tightens global financial conditions ahead of next month’s expected U.S. interest rate rise.

As a result, risk aversion in emerging markets has intensified and anxiety the high-spending fiscal plans of Italy’s incoming coalition government has sown a degree of that risk aversion in euro zone government bond markets too.

Traders work on the floor of the New York Stock Exchange, May 21, 2018

Offsetting all that is an improvement in high-frequency economic readings and surprise indices as we wind our way through the second quarter and a likely fillip to business confidence of a significant thawing of U.S.-China trade relations this week.

But June now looms as a month packed with market event risks – the Federal Reserve’s policy meeting, OPEC, the U.S.-North Korea summit, the European Union summit on Brexit and even a Swiss referendum on changing the country’s basic monetary policy settings.

Partly due to a series of holidays in Asia and Europe early this week, price action remains patchy – with the rise in Italian sovereign yields the standout move beyond the dollar.

As Italy’s President considers the proposed compromise candidate for Prime Minister, little known academic Giuseppe Conte, Italy’s 10-year government yields kept nudging higher first thing on Tuesday, briefly touching a 14-month high before slipping back. Spreads over Germany are their highest since last June.

While markets have been spooked by spending plans that could lift Italy’s budget deficit to well over 3 percent of GDP next year, many analysts point to the wafer-thin 6 seat majority the proposed coalition has in the Senate as one limiting factor on passing all its measures, as well as the President’s power of veto over any move deemed unconstitutional or damaging to the country’s treaty obligations.

Credit ratings firms Fitch and DBRS have registered some concern about the budget maths, but stopped short of suggesting any ratings action until more concrete details emerged. Markets-wise, BTP-bund spread levels just above 200 basis points are seen as an important marker of concern as these were the peaks seen early last year amid concerns the anti-euro National Front could win France’s Presidential elections. On Tuesday, that spread is hovering about 182 bp.

Elsewhere, the recent dollar surge has taken something of a breather overnight after setting new highs on Monday. Euro/dollar nudged lower again to $1.1766, but remained well above Monday’s low $1.1715 so far.

The dollar’s DXY index held about Monday’s New York close but again well off the 2018 peak set earlier in that session. HK and South Korea’s markets were closed earlier, but Shanghai and Tokyo stocks were flat to a touch lower.

Chinese stocks were helped by the close by reports that the United States and China have reached a deal to remove a U.S. sales ban against Chinese telecoms giant ZTE, ostensibly at the direct request of Chinese President Xi.

Brent crude prices pushed higher to $79.50, meantime, with a return to power of Venezuelan President Maduro after this week's election expected to crimp crude supplies from the country further over time. Ten-year U.S. Treasury yields were steady just above 3.06 percent.

— A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own. —

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