Fitch confirms Italy’s BBB credit rating

Summary:

• Fitch affirms Italan credit rating at BBB with a negative outlook, it also flags up downside risks to the fiscal outlook
• Wall Street ended Friday’s trading below the flat line, Asian indices have kicked off the week a bit higher
• A calm beginning of FX trading, demand for Japanese yen prevails though

Italy survived

On Friday, Fitch confirmed Italian credit rating at BB and maintained its negative outlook, a sign of relief to the European country which may soon face snap elections. Although the assessment was kept unchanged. The negative outlook still suggests the rating agency may downgrade the country any time soon. This is especially true if the economic outlook worsens after snap elections expected to be held in October. In its official statement Fitch wrote that the latest political developments had confirmed its previous view that the government was unlikely to see out a full term. On top of that, the rating agency flagged up some downside risks to the fiscal outlook should a new government decides to disengage from EU fiscal rules (that could inject more nervousness into financial markets driving bond yields much higher and hampering the country to finance its targets). Concurrently, Fitch kept its macroeconomic forecasts unchanged meaning it still expects the Italian economy to expand 0.1% this year, down from 0.9% registered in 2018, while investment growth will slow to 1.3% from 3.4% last year. As far as a country’s budget balance is concerned, the rating agency expects a deficit of 2.7% of GDP this year, unchanged compared to its previous review. Apart from the Fitch decision it is worth mentioning a Salvini’s comment from Saturday when he reiterated that “The idea of leaving Europe, leaving the euro has never been in the pipeline”.

Possible snap elections in Italy add to downside risks to the euro as well as Italian stock and bond markets. The support localized nearby 20 100 points could be important for bulls in the coming hours. Source: xStation5

Calm trading amid thinner volumes

The beginning of trading in a new week has been quite benign despite losses incurred by US investors on Friday. Asian investors have seen some green during the first hours of their activity this week with the Shanghai Composite rising as much as 0.7% at the time of preparing this commentary. Elsewhere, the Hang Seng is rising 0.4%, the South Korean Kospi is gaining 0.4% while the Australian index is trading 0.1% down. Let us notice that Japan is on holiday today. Looking into the FX space one may notice that demand for the Japanese yen is prevailing, however, the increase has not been significant so far (less than 0.3% against the US dollar). Meanwhile, the US 10Y bond yield managed to erase some of its losses seen last week and finished the week at 1.745%, compared to ca. 1.9% seen at the start of the past week. 

In the other news:

• New Zealand’s credit card sales fell 0.1% MoM in June