020 7898 0500Oh dear. The eurozone is going through the (trade) wars at the moment. The political turmoil that has engulfed Spain and Italy hasn’t been ideal for Europe, and there have been persistent fears that the eurozone crisis is rearing its head once more. However, yesterday investors began the morning in high spirits, as there is now a chance that Italy could form a government without the need for fresh elections.
News that the leader of the Italian far-right party the League, Matteo Salvini, has cancelled political rallies led many to believe that a political impasse could be coming to an end. The news was received warmly by the markets and they moved up. However, Trump soon put paid to any ideas of optimism, by slapping trade tariffs on steel and aluminium imports from the EU, Canada and Mexico.
It now remains to be seen what happens next, but we can expect retaliatory measures to be forthcoming. The real question is how will Trump respond to those retaliations. As it stands, that’s the focus, because if we become embroiled in a tit-for-tat spat, then a full-blown trade war could be just around the corner. And despite Trump’s claims to the contrary, trade wars are not easy to win, mainly because there are no winners.
Unemployment in the eurozone for April came in at 8.5% against an expectation of 8.4%, while inflation hit a whopping 1.9% in May from 1.2% the month before. That really is quite a rise and far exceeded the 1.6% analysts had predicted. Quite what this will do to influence monetary policy is currently unknown, but it will be received positively by hawks hoping that the European Central Bank starts withdrawing fiscal stimuli sooner rather than later.
Today we’ll see manufacturing PMI for Germany and the eurozone, but attention will be on trade tariff retaliations and the situation in Italy and Spain.
