Stocks recover, FOMC minutes in focus

After a cautious Asian session, European markets are advancing in early trade on Wednesday. investors await fresh clues on US monetary policy and digest political developments in Italy along with no deal Brexit preparations.

With little in the way of economic data in the European session attention has swung towards the FOMC minutes due for release at 18:00 BST. The minutes will give investors an insight into policy maker deliberations prior to the first interest rate cut in a decade. Will Fed Powell and co stick to the “mid cycle adjustment” line or will they give something else to the markets? Whilst investors will be looking for acknowledgement from the Fed that downside risks have increased. However, given that the FOMC was prior to the most recent escalation in the US – Sino trade dispute, the minutes could be more hawkish than current market pricing. As a result, there is a chance that the minutes could boost the dollar and drag US stocks lower.

No deal Brexit planning hits GBP

The pound was offering the is giving back gains from the previous session, whilst also offering support to the FTSE. No deal preparations are starting to unnerve pound traders once again. Whilst Boris Johnson is due to visit Angela Merkel and France’s President Macron, the chances of the EU ditching the Irish backstop are slim at best. Instead, traders are focusing on Boris Johnson’s threat of dramatically reducing contact with the EU in 10 to focus on no deal preparations. The realisation that a disorderly Brexit could be just over 70 days away is unnerving already jittery pound traders. With MP’s due back from the summer recess at the beginning of September we can expect pound volatility to go to new levels. Headline trading is challenging at the best of times, headline trading weeks from Brexit will certainly result in some wild movements.

FTSE MIB recovers as Italian coalition option still exists

In Italy the FTSE MIB has rebounded, making back losses from the previous session, and more. Hopes that a new coalition will be sought rather than problematic Autumn elections are boosting the mood riskier Italian assets. Whilst there is no denying that the situation in Italy is a total mess, political instability there is not so uncommon, allowing investors to shrug off the potential of much more uncertainty (for now).

Italian banking stocks are paring some of yesterday’s losses although they continue to sit at a net loss. The prospect of another budget clash with the EU is still lingering, impacting the price of Italian bonds. Italian banks are large holders of Italian bonds, making them particularly sensitive to price changes and political developments.