The Dow surged over 100 points higher overnight to strike a fresh record high. Optimism surrounding global trade and a lift from Intel (NASDAQ:INTC) ensured a second straight session of gains for the Dow and another record in 2018. Whilst the Dow pushed boundaries, the Nasdaq dropped 0.5% weighed down by tech after Amazon’s minimum wage rise. More broadly, US markets struggled over growing concerns for Italy.
Relief Rally as Italy Plans to Reduce Budget Deficit in 2020
Asian markets reversed early losses and the euro rebounded, on reports that Italy intends to cut its budget deficit at a faster pace than initially expected. Reports suggesting that Italy will now reduce its budget deficit to 2% of GDP by 2020 has reduces chances of a full-on collision with Brussels and a second eurozone debt crisis. The surge in the euro overnight has taken the single currency off a six-week low and we expect further gains as the European session begins.
Italian concerns had been dragging on global sentiment since the European Commission raised an eyebrow at Italy’s budget plan. Italy’s already high debt pile would increase significantly under Italy’s original budget intentions. However, plans going forward to bring the deficit under control and avoid another debt crisis has boosted risk appetite across the globe.
This is by no means the end of this tale, which is why the FTSE MIB is looking to a slower start that its European peers and gains in the euro could be capped. However, the odds of a happy ending have improved. Brussels still need to approve Italy’s budget plans by the middle of the month, so we could still see some jitters until the ink has dried on that approval.
Pound Below $1.30 Ahead of Service Sector PMI and Tory Conference Wrap
After stronger than forecast manufacturing pmi figures and weaker construction data, the service sector is under the spotlight today. Activity in the dominant service sector is expected to have cooled in September to 54 after a stronger summer, which could set a negative tone to trading on the pound. That said Brexit will continue to be the principal driving force for sterling. All eyes will be on Theresa May as the Conservative party annual conference enters into its final day.
The pound continues to trade below 1.30 in early trade as hopes fade that a solution to the Irish border Irish will come from concessions from Theresa May. Arlene Foster, DUP leader; the Northern Irish party whose support Theresa May relies on in Parliament to have a working majority, is standing firm that “Northern Ireland should not be bound into arrangements that the rest of the UK is not tied into”. Her position highlights the difficulties faced to reach a solution on the Irish border as the clock kees ticking.