Renzi resigns sinking the Euro
Last week, Sterling went from strength to strength after hawkish comments from a Brexit MP and President of the Eurogroup. The currency jumped higher on comments from Brexit Secretary David Davis that the government is prepared to consider paying for the UK to access the European single market. The news has lessened concerns amongst UK businesses as to what kind of trading relationship they could expect once Article 50 has finished. Shortly after, Eurogroup President and Minister of Finance Jeroen Djissenbloem aided the Sterling rally by saying the EU may find a way to maintain UK access to the internal market. Sterling climbed over 1% against the Euro and Dollar after the news.
Finally, it was non-farm Friday last week. The NFP met expectations of 177k leading to a relatively muted market reaction. However, Friday’s release was never going to be essential to any big market moves or trends, as economists are all but certain the Fed will raise rates this month by 25 basis points.
The biggest market driver of the Euro this month will arguably be what happened last night in Italy where the Italian Constitutional reform took place. Italian Prime Minister Matteo Renzi announced he would resign after a crushing defeat in Sunday’s referendum. Renzi won a little over 40% of the vote, a far worse result than polls had predicted. Renzi’s decision to quit has dealt another fatal blow to the European Union with the Euro depreciating against nearly all its counterparties. The Euro fell to a 20-month low against the Greenback while GBPEUR moved 1% higher after the news. Markets are now worried that instability in the already heavily indebted Italy could re-ignite and spark further economic woes for the Eurozone, with some investors muttering the words “Quitaly” once again.
It will be a relatively quiet economic calendar on Tuesday with only one notable piece of data scheduled, the ECOFIN meetings. The ECOFIN meetings are attended by Finance Ministers from EU states and with the recent Italian referendum results, anything said regarding Italy will likely spark further volatility for Euro.
Wednesday sees a key piece of secondary sector data from the UK, followed by Crude Oil inventories in the afternoon. Manufacturing production in the morning is forecast to decline from last month’s reading to 0.2%, whilst industrial production is expected to bounce back from negative territory. Last week’s OPEC meeting in Vienna has put this afternoons Crude Oil Inventories’ reading into the spotlight. Negotiations led to members freezing production at 32.5m barrels per day, which was toward the lower end of economists’ forecast last week.
Arguably, the busiest day of the week sees a rate decision by the European Central Bank and a Draghi-led press conference. The ECB are not expected to raise rates this month, with the current bid rate at record lows of 0.00%, however the press conference could spark market movement if President Mario Draghi gives economists any forward guidance or mentions the recent events in Italy.
We finish the week with a relatively light economic docket, with the only notable piece of high tier data released being from the States in the form of the University of Michigan Consumer Sentiment. The UoM Consumer Sentiment measures the level of current and future economic conditions as based on surveyed consumers. The figure is expected to tick slightly higher than last month’s 93.8 to 94.3, which would mark a seven month high.