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Fear deepens (Afternoon analysis 28.09.2018)

28 Sept 2018 15:56|Marcin Lipka

Growing yields on Italian treasury bonds. Italy is approaching 4-year highs on 7-year debt instruments. Inflation data from the USA without much impact on the market. The zloty remains stable in relation to the euro but depreciates to most other basic currencies.

In the afternoon the losses of the Milan Stock Exchange (FTSE MIB) range from 4.00-4.50%. The Italian Treasury bonds are also very seriously discounted. On 7-year yields, one-day growth is at the level of 45 basis points, reaching the level of 3.00%.

7-year Treasury instruments are a good indicator of the maintenance costs of Italian debt, as this is more or less the average maturity of Italy's entire debt. This allows for a relatively accurate estimation of the increase in the cost of additional debt. To remind one that before the plans of the new coalition (March and April this year) crystallised, profitability ranged from 1.1-1.4%. Currently, they are more than twice as high. Additionally, if the level of 3.03% is exceeded, they will reach the highest values since the beginning of 2014.

The situation in Italy continues to have a negative impact on the EUR/USD. The main currency pair was also not supported by a slightly lower than expected PCE's core inflation reading from the USA (there was no change on a monthly basis and an increase of 0.1% was expected).

Italian commentators also point out that in the current coalition's plans the issue about the possibility of modifying the debt reduction plans presented by the previous government is the most important. This may increase the risk that the path of debt to GDP, instead of falling, will start to grow in forecasts sent to the European Commission or, for example, to the IMF.

This may lead to the risk that debt will be more difficult to service in specific macroeconomic scenarios. This, in turn, may put pressure on the Italian rating. It will be important whether, in the next few days, this violent market reaction observed today will result in the ‘revival’ of the government. If not, then the problems may escalate next week as well.

The zloty, on the other hand, which should not be a surprise given the events of the recent weeks, is still very stable. In the afternoon, it even started to approach the lower limit of today's fluctuations on EUR/PLN (4.27-4.28). The franc and the dollar are clearly higher than yesterday, but despite a significant increase in risk aversion in the region, the zloty is acting well. It seems that this trend should also be maintained during the session in the USA.

28 Sept 2018 15:56|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

28 Sept 2018 13:01

There are first signs of panics (Daily analysis 28.09.2018)

27 Sept 2018 15:48

Dollar appreciates (Afternoon analysis 27.09.2018)

27 Sept 2018 12:53

Italy again causes problems (Daily analysis 27.09.2018)

26 Sept 2018 15:53

Stronger zloty and dollar (Afternoon analysis 26.09.2018)

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