Rolling coverage of the latest economic and financial news, as the Shanghai stock market leaps by over 4%
- Latest: Italy tried to calm budget row
- Chinese president has pledged to protect companies
- China could cut taxes to support growth
- Italian bonds rally, despite downgrade
Economics students at Liverpool University are studying the Italian situation today, and make an important point.
Italy may be relieved to still have an ‘investment-grade’ credit rating, but that doesn’t remove the dangerous feedback loop between the banking sector and the government…
Moody’s decision to downgrade Italy to one level above junk status has, so far, not triggered panic. In fact, Italy’s borrowing costs wend down. There is a good reason for this. Investors are relieved to see Italy avoiding a junk status because Moody’s is considered more conservative (in the sense that it gives more inferior ratings) than other Rating Agencies.
Since Moody’s has not relegated Italy to junk status, it is more likely than not that other Rating Agencies won’t push Italy to the ‘junk abyss’.
So any further stress to Italian yields will be transmitted immediately to Italian banks which will then increase the risk of severe contagion effects to Eurozone’s periphery…
Giuseppe Conte has told reporters in Italy that growth will “take off” once his government’s tax and spending plans are implemented [unless Brussels demands a rewrite…].
Prime minister Conte has also promised that Italy certainly won’t run a deficit over 2.4% of GDP next year. It might even be lower….
ITALY PM CONTE SAYS WE ARE READY TO CONSIDER REINING IN DEFICIT DURING THE YEAR
Just in: Italy is attempted to calm the dispute with the European Commission over its tax and spending plans.
In a letter to the EC, economy minister Giovanni Tria says the Italian government is “conscious” that its 2019 budget isn’t in line with Europe’s stability pact, because its structural deficit [2.4%] will exceed the EU target [2%].
ITALY PM CONTE SAYS REITERATES THAT ITALY IS IN EUROPE AND WANTS CONSTRUCTIVE DIALOGUE WITH EU
ITALY PM CONTE SAYS ITALY’S 2.4 PCT DEFICIT GOAL IS ONLY 0.4 PCT ABOVE THE TREND LEFT BY PREVIOUS GOVT
ITALY PM CONTE SAYS IF ITALY HAD CONTINUED ALONG FISCAL PATH SET BY PREVIOUS GOVT IT WOULD HAVE GONE INTO RECESSION
Sterling has lost ground this morning, as the UK government limbers up for yet another crunch week for Brexit.
The weekend papers were full of warnings that Theresa May has just days to save her premiership (something of a recurring theme for the embattled PM, of course). She’s no closer to finding a Brexit deal that can win the support of her cabinet, let alone the UK parliament.
Societé Generale 1/2: Theresa May remains under pressure in the UK after another awful weekend for newspaper headlines. A ‘#Brexit deal appears closer but whether she can sell the deal to her party is a completely different question. #GBP #sterling #pound #GBPUSD #EURGBP pic.twitter.com/WFnXl81jiS
Just in: Germany’s central bank has warned that the country’s economy has endured a rough quarter.
Although the economic upswing in Germany is essentially still intact, it may have come to a temporary halt in the third quarter of 2018.
According to the Bundesbank’s latest Monthly Report, this was mainly due to a substantial fall in production by car manufacturers.
Those Chinese stimulus hopes are also pushing commodity prices up this morning.
Copper has jumped to a one-week high, after president Xi tried to reassure China’s companies that he was behind them.
Benchmark copper on the London Metal Exchange was up 1.2% at $6,292 a tonne.
“The news from China is encouraging for metals,” said Eugen Weinberg, analyst at Commerzbank.
Italian government bonds are strengthening this morning, on hopes that a full-blown battle with Brussels can be avoided.
Deputy prime minister Luigi Di Maio, who leads the anti-establishment 5-Star Movement, has insisted today that his government will not leave the euro. It is expected to publish a letter later today, outlining its response to the EU’s concerns over its 2019 budget.
Italy Says To Publish Its Response To EU Letter On Budget At 1000GMT/1100BST $EURUSD
“When you are an EU member and a member of the single currency, of the euro zone, you must respect a number of joint rules.
More airlines are likely to collapse in the next few months, as the rising oil price hits earnings.
So claims Ryanair’s Michael O’Leary this morning, as he reported a 7% drop in profits in the last six months.
Disruption to flights straight after Brexit is “unlikely” and Britain’s government would fall if planes were grounded, Ryanair CEO Michael O’Leary says https://t.co/SMvwWkP1Dh pic.twitter.com/CSdvutCdEl
Donald Trump’s trade war, and the wider economic slowdown in China, are creating a real headache for policymakers.
While a stimulus package might boost growth, it could also undermine Beijing’s attempts to limit risky borrowing and ‘deleverage’ the economy.
“One of Beijing’s top priorities for this year was deleveraging, but that policy has shifted gradually because there are more serious problems.
“If deleveraging continues, many Chinese companies may die in the process. But if deleveraging slows down, the financial risks will continue to pile up. So regulators are for sure very worried, and I don’t think they have found a particularly good way out of it.”
European stock markets have begun the new week with small gains, helped by the rally in China.
Britain’s FTSE 100 is 10 points highers, while Italy’s FTSE MIB has jumped by almost 1%.
Global mkts start in Risk-On mood to the week driven by China rally and Italy optimism. Pos comments from China incl support for private enterprises, looser M&A, share buybacks, state fund support. In Europe, Moody’s decision to cut Italy rating but upgraded outlook seen as pos. pic.twitter.com/NJR35kUox7
China’s stock market has closed for the day, with its biggest surge in three years.
The CSI300 index ended the day 4.3% higher at 3,270, its biggest rise in almost three years, thanks to the flurry of reassuring noises from Chinese politicians and officials.
#Shanghai Composite surged 4% to close at 2654, BIGGEST ONE-DAY RISE IN 2 YRS, after top regulators talked up market and pledged more measures to support the market.
Trading volume hit 3-month high.
BROKERAGES ALL LIMITED UP!!
Shenzhen Component and Chinext up 4.9% and 5.2%. pic.twitter.com/LpNqRosSQi
The Chinese government’s “verbal support for the economy and markets” has created a risk-friendly mood to start the week, says Kit Juckes of Societe Generale:
Reassurance from the Chinese leadership that they will support the economy have triggered the biggest one-day increase in equity indices since 2015 and has given markets everywhere a risk-friendly bias to start the week.
A top Chinese central bank official has hinted that Beijing could unleash hefty tax cuts to keep its economy on the road.
Ma Jun, advisor to the People’s Bank of China, declared that tax cuts in 2019 could be worth over 1% of gross domestic product (GDP).
Craig Erlam of foreign exchange firm OANDA says Chinese traders have welcomed Beijing’s pledge to protect the corporate sector:
President Xi added his name to the list of those vowing to support private firms over the weekend, giving investors reason to pile back in to battered Chinese stocks.
The Shanghai Composite had fallen more than 30% from its peak this year prior to Friday’s comments, which has been the clearest sign so far that tariffs are biting.
Every sector on the Chinese stock market has rallied hard today, thanks to president Xi’s pledge to support businesses.
Healthcare and technology stocks led the way:
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
“Any words and practices that negate and weaken the private economy are wrong.
Supporting the development of private enterprises is the Party Central Committee’s consistent policy.
Chinese stocks rallying hard as Beijing’s verbal support reverberates through markets:
China H-Shares +3.1%
Hang Seng +2.2%
Shanghai Composite +4.1%
CSI 300 4.4%
ChiNext Index +5.7% pic.twitter.com/au8lCum3G9
Asian shares bounced higher on Monday, as Chinese stocks extended their rebound for a second straight session, pulling European futures higher in the process.
Beijing’s pledge of support for the economy is overshadowing geopolitical concerns over Saudi Arabia, Italy and Brexit.
It is all about China today whereby stimulus hopes lifted sentiment across the FX markets and helped traders to offset geopolitical and trade concerns. AUDUSD rebounded from this morning dip. Eyes on the GBPUSD as PM plans to announce that EU withdrawal is 95% settled. #AUDUSD pic.twitter.com/O2SP7Y9bxa