Weekend highlights: Italy, Turkey, ECB, China, Brexit, North Korea - its all here

The open this week is subdued, ranges 12 pips at the most in the case of cable.  We are lacking price action catalysts on the calendar, leaving us to look at what has occurred from Friday's close and a browse over the weekend. 

Markets found further solace on headlines that the US and China as reported in the WSJ, are 'mapping out talks' and 'to try to end their trade standoff ahead of planned meetings between President Trump and Chinese leader Xi Jinping at multilateral summits in November, said officials in both nations.' 

This news was cheered by Wall Street and the DJIA rose 110.59 points to 25,669.32, with all benchmarks finishing in the green. US yields ranged sideways for the best part of the close, with the 10yr treasury trading inside 2.84% and 2.88%, while 2yr yields moved between 2.60% and 2.62%. The greenback actually lost ground on the US/China optimism, also weighed by poor data in the University of Michigan’s preliminary August consumer sentiment survey falling a larger than expected 2.6pts to 95.3 - its lowest in eleven months. 

From the weekend, there was nothing particularly catalytic but there had been a weekend focus on the current key themes in the FX space that all got their share of headlines. 

Europe

In Europe, Italy has been a concern and Friday's close was dominated by weakness in the Italian banking sector. Well, just as we see the final day of Greece bailout of which funding formally comes to end on Monday 20th, the  UK's Telegraph had a column on Italy's populist government that is drawing up "a 'Marshall Plan' of up to €80bn to rebuild the country's dilapidated infrastructure after the Genoa bridge collapse, seizing on the politically-charged disaster to smash EU budget rules." The article further writes, "Officials aim to invoke the 'Golden Rule' championed by Britain's Gordon Brown to remove chunks of public investment from the headline budget deficit, a ruse that would make it easier for the radical Five Star-Lega coalition open the floodgates of fiscal stimulus and reflate Italy's stagnant economy."

Another concern for investors in that neck of the woods that equally threatens creditors in the EZ is Turkey. However, there seems to be some faint air of optimism on the back of Qatar and Turkey's central banks signing a currency swap agreement to provide liquidity and support for financial stability according to announcements made by Qatar's central bank on Sunday. Moreover, the S&P revised the Turkish sovereign rating to B+ from BB-; (maintains outlook at stable).

However, in the German finance ministry monthly report, there is a much different light shed over Turkey. In the report it states that "The economic developments in Turkey present a new, external economic risk," which comes in addition to "The persistent debate about tariffs and the threat of a trade war are choking trade activity."

Also for the EZ, Bundesbank President Jens Weidmann said the European Central Bank is on course to reduce stimulus. In an interview with Frankfurter Allgemeine Sonntagszeitung, he argued that after the latest decisions, a normalisation of monetary policy is foreseeable but that the process will be gradual and it will "take a while".  On Turkey, he said, "the currency crisis in Turkey would have limited impact on German banks" and that "Turkey was number 16 on the list of German trading partners", accounting for just 1% of global economic output.

Brexit

Meanwhile, and across the channel, the same paper, The Telegraph, reports that EU migrants will be given the right to stay in event of no-deal Brexit amid fears of labour shortages, Cabinet papers revealed. This further cements the reality of how negotiations are steering, weighing on sterling this week - The papers also highlight the fact that much of the UK's no deal planning will rely heavily "on the availability of existing labour" in the event that talks break down, The Telegraph reported.

Asia-Pacific

There was a dead spot on the US-China trade headlines as much was already revealed on Friday. However, there was some chatter around the RMB where the PBoC is making moves to curb arbitrage funds from shorting RMB with newly implemented policies aim to reduce the amount of overseas yuan circulation. Also from the Pacific, Weekend news stated that North Korea will allow the UN agency to conduct on-site missile safety inspection and North Korea is to permit an on-site inspection - we step closer to world peace.