German inflation is due for release, in advance of the euro area figure tomorrow

Market movers today

• The key focus in the financial markets will be on the next steps in the Italian political drama after yesterday's sell-off, which is increasingly impacting global financial markets. The former IMF employee Carlo Cottarelli is due to go the president's office, most likely to acknowledge that he cannot form a government. This opens the possibility for new elections or renegotiations for a Five Star/League coalition government.

• be on possible Chinese reaction to the US announcement that the US will impose limits on Chinese tech investment and go ahead with 25% tariffs on Chinese imports.

• In terms of economic releases, the US PCE core in April is due out. Based on CPI, PCE core rose +0.1% m/m in April, which would lower the inflation rate to 1.8% y/y from 1.9%. We still believe there are upside risks to US inflation, as the total policy mix has become easier.

• German inflation is due for release, in advance of the euro area figure tomorrow.

Selected market news

Italy remains the focal point in financial markets with large intraday movements in European fixed income markets observed yesterday and also in major EUR crosses, e.g. EUR/USD and EUR/CHF. The German government also spoke on the matter, with the German Finance Minister Scholz quoted as saying 'I know that the Italian people are very pro-European', in a Bloomberg Television interview in Berlin on Tuesday. 'So I think we could be optimistic, though there is a political debate about building a new government. But this is something that will not change the more pro-European approach of the Italians.'

The US market has also undergone a vast repricing over the past couple of days with the 10Y US yield falling close to 2.80% yesterday - about 30bp from the peak. In addition, US equity markets tracked the decline in European equity markets yesterday, falling around 1-1.5%.

Saudi Arabia, Kuwait and the UAE are said to be planning to meet on Saturday to discuss a new strategy for the oil market ahead of the 22 June regular OPEC meeting. The news follows comments from Saudi Arabia and Russia last Friday that they will propose OPEC begin raising crude output from H2.

In the US, a timeline for imposing USD50bn in import tariffs on China was laid out yesterday. A final list of covered imports is planned to be released by 15 June and imposed afterwards. Proposed restrictions on investments and export controls will announced on 30 June and implemented afterward.

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