EUR/USD – Not rocked by Italian politics (video)

Pressure mounts on Powell to deliver

Recession nerves look to have settled a little following last week’s panic, which has brought some relief to markets. Now that everyone is an expert in inverted yield curves and the apocalyptic foresight they contain, there seems to be an odd acceptance of where we’re heading (or is it denial?)

The Fed will be all too aware of the events of the last week, not just because of its historic significance, but because investors are now relying on them even more heavily to save the day. Markets are effectively pricing in a rate cut every remaining meeting this year. Are investors setting themselves up for disappointment or leaving the Fed with little choice but to follow?

Clearly Powell can’t afford to get it wrong on Friday because any signal that markets are way off the mark will likely cause further mayhem, not to mention a backlash from the White House. The Fed minutes today will naturally be of interest but given the events of the last few weeks, I wonder just how outdated they’ll be at this point, unless they’re encouraging for the many rate cutting enthusiasts out there, of course.

Can Italy avoid new snap elections?

Work is underway in Italy to see if the President can avoid another snap election just ahead of the important budget season. Italy’s finances are a constant cause for concern which makes Salvini’s successful attempt to bring down the government all the more inconvenient, especially as these are never particularly straightforward as last year highlighted.

While Italian stocks and bonds have been sensitive to the all-too-familiar destabilising political landscape, the euro has been relatively unshaken. While domestically this is another negative for Italy, the risks beyond its borders are minor at this moment in time which is why the euro is taking it all in its stride.