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Italian bank liquidations, battle lines drawn as Brexit talks begin, and a deluge of Fedspeak looms. Here are some of the things people in markets are talking about.
Italian Bank Blues
Italian politicians and bankers are rushing to put in place measures to put two struggling regional banks — Banca Popolare di Vicenza SpA and Veneto Banca SpA — into liquidation without sparking fear of a broader banking crisis. The government will be providing funds to Intesa Sanpaolo SpA to be used for the acquisition of the good assets of these ailing banks, while also providing the lion’s share of funding for a bank which will hold the undesirable assets. The total bill for state support may run up to 7 billion euros ($7.8 billion), and Italian lawmakers were forced to approve emergency rules on Sunday so that the two failing banks could open on Monday. The European Central Bank on Friday said both lenders were likely to fail and would be wound up in accordance with Italian rules. Critics contend that the terms of this solution cripple any shot of a banking union in Europe. Meanwhile, the final round of municipal elections on Sunday will offer a look at whether center-right parties — including former premier Silvio Berlusconi’s Forza Italia — are gaining traction ahead of next year’s general election.
Davis Holds Court
U.K. officials are drawing lines in the sand just as formal talks with their European Union counterparts get underway. Brexit Secretary David Davis is insisting that the European Court of Justice will have no role in adjudicating disputes after the U.K.'s March 29, 2019 departure — a challenge to the E.U. negotiators’ demands. Both sides have agreed that this sticking point must be resolved before talks about a post-Brexit trading relationship begin. Davis also sought to fend off dissension within the Conservative Party’s ranks, saying that lawmakers planning to usurp Prime Minister Theresa May need to stop being “so self-indulgent.” Fears of a so-called ‘hard Brexit’ from the E.U. have continued to weigh on the pound even after last year’s plunge on the referendum results, but it’s not even the worst performing pound since the vote.
Fedspeak on Deck
So begins another week in which speeches from Federal Reserve officials are expected to dominate the financial discourse. However, traders aren’t expecting this deluge of Fedspeak to give the greenback a major lift, suggesting that the risks remain tilted to the downside for the world’s reserve currency. San Francisco Fed President John Williams gets the ball rolling with a speech in Sydney at 2:20 p.m. Tokyo time on fostering sustainable growth in the U.S.; Chair Janet Yellen is scheduled to speak in London the following day. A heavy dosage of Fedspeak didn’t do much to buoy the greenback and longer-term Treasury yields last week, with the former edging higher while the latter retreated modestly.
Looking for Anti-Fragility
The Bank for International Settlements released its annual report on Sunday, in which it urged policymakers to cooperate and take advantage of the current expansion to “build greater economic resilience.” The central bank of central banks warned that a financial-cycle bust — rather than labor-market driven inflation that causes monetary officials to bring about a recession by tightening — is the primary threat to the current expansion. As such, the BIS highlighted the risks associated with high household debt in a variety of major economies, while also adding that the adjustment costs stemming from free trade and financial integration need to be “carefully managed.”
Also Coming Up…
Though Indian Prime Minister Narendra Modi is slated to meet U.S. President Donald Trump at the White House, Monday is poised to be a rather light day for economic data in the Asia-Pacific region. Leading off is the summary of opinions from the Bank of Japan from its mid-June meeting. In addition, we’ll get the final reading of Japan’s leading and coincident index for April due out at 2:00 p.m. Tokyo time. Later in the day comes Hong Kong’s trade balance for May, with the deficit forecast to slim to $31 billion from $34.1 billion in April. Over in Europe, the June edition of Germany’s IFO business climate and expectations surveys are forecast to moderate slightly from their previous readings.
What we’ve been reading
This is what caught our eye over the last 24 hours.
- OPEC looks totally bewildered.
Rapid U.K. credit growth may have Carney rethinking stimulus needs.
Real wages are going backwards in Australia.
Merkel’s rival slams the Chancellor as soft on Trump.
Saudi demands “difficult” for Qatar to meet, says Tillerson.
Nestle said to be in Dan Loeb’s crosshairs.
- Japanese casinos don't need high rollers.