News

Global Markets Tumble as Italy’s Political Crisis Deepens

Equities

Italy’s political crisis weighed on global indices leading to a heavy sell-off on Tuesday. DowJones and SPX500 fell to the lowest levels in three weeks following the earlier sell-off in European equities as investors were afraid of a renewed turmoil in the Eurozone. Financial sector suffered the most with major European and US banks losing more than three percent. The political crisis boosted the volatility in the markets where VIX, the CBOE Volatility Index which measures the expected volatility in the stock market, gained four percent to rise to the highest level since April 25th.

USD

The dollar continued to strengthen as investors liquidate their euro-related positions. The Dollar index which measures the greenback against a basket of major currencies rose to 95.03 the highest since November 7th. In terms of data, the ADP Nonfarm Employment Change for May is due today along with the preliminary release of the first quarter GDP.

EUR

The Euro tested 11-month low against the United States dollar as the Italian political crisis deepened. There is a higher probability now that the President Sergio Mattarela will dissolve the parliament and head for an early election in July-August. Investors are worried about the developments of this crisis as it raises the chances of a referendum in Italy to exit the single-currency area.  The euro lost seven percent against the dollar since late April due to the slowdown in the Eurozone economy and the political uncertainty.

CAD

The Canadian dollar fell to a two-month low against the dollar ahead of the Bank of Canada interest rate decision today. The probability of a rate hike dropped from 50% in Mid-April to 16% today due to the weaker-than-expected Consumer Price Index and Retail Sales. The Loonie is facing pressures from the Volatility in the Oil markets, NAFTA developments, and soft economic reports.

Gold

Gold prices rose to an eleven-month high against the Euro on the Italian political crisis. However, Gold prices denominated in US dollar remained almost steady after choppy trading yesterday. Gold rose to a high of 1306.60 to find resistance at the 200-day simple moving average and rebound to below the $1300 level. Gold is known as a safe investment in a case of political uncertainty, however, the strength of the dollar is weighing on gold prices.

Oil

Oil prices terminated a five-day losing streak yesterday after finding support near the $66 level. Oil markets were facing pressure as Saudi and Russia agreed to raise their crude production on Friday. The weakening global economy could lead to a slump in oil demand. Investors are worried that an increase in oil supply from OPEC and Non-OPEC countries along with the decrease in the global demand can lead to excess supply in the oil markets and take the price back down to low levels. On the other hand, the American Petroleum Institute reported yesterday that the US Crude oil inventories fell by 1.8 million barrels last week.

Major Economic Events

GMT Country Event Expectation Previous
8:00 EU German Unemployment Change (May) -10 -7
12:30 US ADP Nonfarm Employment Change (May) 190 204
12:30 US GDP (QoQ) (Q1) 2.3% 2.3%
14:00 CA BoC Interest Rate Decision 1.25% 1.25%


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