Italian budget roils markets; USDCAD sinks following data

Summary:

• Markets react negatively to Italian budget deficit; ITA40 falls hard

• Tesla also drops sharply after SEC probe

• USDCAD moves back below 1.30 with data supporting the drop

• EURUSD drops on inflation miss but recovers into European close

• Is the next Bitcoin rally around the corner?

There’s been a sizable drop in Italian assets this morning with government bonds and the stock market both falling after the country announced a planned budget deficit of 2.4% for next year. This is towards the higher end of estimates and was celebrated by leaders in the coalition government, although it is above the preference of finance minister Giovanni Tria and also sets the country on a possible collision course with the EU over the bloc’s fiscal rules. Mr. Tria was believed to have been pushing for a 1.6% deficit and the much larger one that has been agreed pon does threaten to undermine his influence on the country’s finances with spending plans now 3 times the initial projections for 2019. The moves seem to be fairly contained to Italy at present although we have seen a little softness in the Euro over the past 24 hours, not helped by the  core inflation number for September unexpectedly declining to its lowest level in 6 months. The ITA40 fell as much as 4% at one point and although there was a recovery into the cash close it represent one of the worst days for Italian stock in recent years.

Tesla is back in the headlines today with the stock plunging over 10% after it emerged after last night’s closing bell that the SEC filed a lawsuit accusing CEO Elon Musk of defrauding investors when he tweeted last month that he was considering an offer to take the company private. Their complaint alleges that Musk “falsely indicated” that he could “take Tesla private at a purchase price that reflected a substantial premium over Tesla stocks then-current share price, that funding for this multi-billion dollar transaction had been secured, and that the only contingency was a shareholder vote.” Musk “had not even discussed, much less confirmed, key deal terms, including price, with any potential funding source,” the SEC said in its complaint.

Two data points from North America this afternoon have done little for the prospects of USDCAD bulls with the pair remaining near its lowest level of the day below the 1.30 handle after their release. First off the US core PCE price index gathers a fair bit of attention as the Fed’s preferred gauge of inflation. This metric for August came in at 2.0% Y/Y as expected, showing no change from the previous month. In M/M terms however there was a small miss here with a print of 0.0% below both the consensus forecast (+0.1%) and the prior (+0.2%). At the same time that we got the latest inflation figures from the US we also received the most recent growth numbers from Canada. There was an upside beat here with the GDP M/M for July rising more than the 0.1% expected, with an increase of 0.2%. USDCAD has dropped back below the 1.30 handle today and the market is now around the middle of it’s longer term channel which dates back to early summer.

European inflation accelerated last month and matched the median estimate while core price growth slowed down, according the release of the Eurostat. In response to the data the shared currency extended its slide and crossed 1.16. The pair could experience its largest weekly decline since the start of the last month if the ongoing momentum persists till the end of the day. Although from a statistical point of view the decline in terms of core growth seems to be negligible (to 0.93% from 0.96% without rounding), it is the clear sign for the European Central Bank that the elevated level of headline price growth has not been driven by endogenous factors at all. The single currency bounced a little into the European close but remains firmly lower on the week.

Crypto markets are a little lower on the day with Litecoin the worst hit and down by almost 4%. Bitcoin may be just ahead of another bull run such conclusions can be drawn from a technical analysis conducted by Bloomberg. It wrote “based on an analysis of RIG tren lines, a leading technical indicator that is a combination of the RSI and momentum studies, the momentum gauge crossed the relative strength index (RSI) gauge, which could be indicating a positive price movement is on the horizon.” The chart below presents this analysis. Based on the past Bitcoin performance one may notice that the price rose three times when the two lines crossed.