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Markets moved by geopolitical fears

Markets were predominantly moved by geopolitical fears and events last week, with the headlines dominated by the Italian political situation and the escalating trade war fears between the US and the rest of the world. In Italy, President Sergio Mattarella, rejected Eurosceptic candidate, Paolo Savona for the role of Finance Minister prompting anger from many and creating fears over a potential snap election across the country. The situation stabilised by the end of the week as a deal was finally agreed that a coalition government would be formed, pushing the Euro back up against the Dollar. In Spain, a political crisis in which Prime Minister Mariano Rajoy was ousted, did little to impact the common currency.

On Friday, positive US Labour data failed to provide any significant boost for the Dollar, despite indicating the almost certain probability of a Federal Reserve interest rate increase this month, in addition to the growing chance of a fourth rate hike this year. This can be linked to rising tensions over the possibility of a trade war between the US and the rest of the world. Indeed, Canada, Mexico and the European Union have threatened retaliatory tariffs on at least $16 billion worth of American goods. Additionally, Trump’s proposed 25 percent levy on auto imports could escalate matters further with S&P’s chief economist signalling that global GDP growth could fall by 1% if tariff threats escalate into a trade war.

The UK Construction PMI was the only release of note today, which posted higher than expected at 52.5. This reading, alongside it’s previous positive posting, has created some positive sentiment for the Pound. Today also saw MPC member, Silvana Tenreyro, speaking at the University of Surrey.

The Eurozone will release a number of final Services PMI figures on Tuesday morning, with Spain, France, Italy and Germany contributing. The final reading for the Eurozone region is expected to match the disappointing ‘flash’ figure of 53.9. Any upward revision will be positive for the single currency.

Following the Eurozone, the UK will release its own Services PMI result at 9.30am. It is predicted to post 52.9, up slightly from the 52.8 posted last month. Any reading above 50 indicating signs of industry expansion.

Later, MPC member Sir Jon Cunliffe, is due to speak at the International Derivatives Expo in London. ECB President Mario Draghi will participate, along with former ECB President Jean-Claude Trichet, in a panel discussion titled "Two Presidents' Talk" at the ECB's 20th anniversary event in Frankfurt. In the US session, ISM Non-Manufacturing PMI is expected to post 57.9, providing supporting evidence for last week’s strong labour data. To close the day, Buba President Jens Weidmann will deliver a speech titled "Reforms for a Stable Monetary Union" at the annual Hessian reception in Brussels.

There are no high tier data releases on the economic docket for Wednesday, only MPC Members speaking. Silvana Tenreyro will deliver a speech titled “Productivity Matters: What is the state of trade?" at the Confederation of British Industry Economic Briefing in Belfast with audience questions expected. Later, Ian McCafferty will discuss the economic outlook and monetary policy in a phone-in interview conducted by Iain Dale on LBC Radio where questions from the public will also be expected.

Thursday is another quiet day with only two pieces of weak economic data expected. First is the Halifax HPI month on month figure which measures the change in the price of homes financed by HBOS. The predicted figure is +1.1%, compared to last month’s -3.1%. The US Unemployment Claims figure is the second, expected at 225k – slightly up from last month’s 221k. Thursday also sees MPC member, David Ramsden, speaking at the Barclays Inflation Conference.

Friday sees no high tier data releases expected. However, Canada is set to release its Employment Change and Unemployment Rate figures.