Tag: eur

EU Still Expanding But Growth is Slowing Down

Euro zone economic growth slowed much more sharply than expected this month, a business survey showed, which along with weaker inflation has intensified concerns there will be no return to the bloc’s recent boom times.



The European Central Bank will end its asset purchase program this year and hike interest rates in 2019, a Reuters poll found last month, although policymakers may be concerned to see inflation easing along with growth.

While the expansion still remained relatively strong, growth slowed to a 20-month low in the bloc’s largest economy, Germany, and the lowest in a year in a half in No. 2 economy France, according to the latest IHS Markit purchasing managers’ surveys.

via CNBC

Safe Haven Currencies Rise on Trade Uncertainty

Investors sold equities on Wednesday and raced to buy Japanese yen and government bonds from the United States and Germany on fears that setbacks to U.S-China trade talks would undermine increasingly fragile-looking world growth.



The yen JPY=EBS rose more than 1 percent against the dollar, U.S. bond yields, which move inversely to price, fell to eight-day lows.

World shares meanwhile slipped half a percent to a two-week low as weak euro zone data added to negative sentiment following U.S. President Donald Trump’s comments on the crucial trade talks.

Investors were also eyeing Turkey and Italy, with the former seemingly headed for a full-blown economic crisis as the Turkish lira plunged to new record lows.

Italian borrowing costs resumed their rise to hit new multi-month highs on fears that an incoming coalition will sharply boost government spending.

via Reuters

Trump Hints at Upcoming Good News for US Auto Workers

U.S. President Donald Trump, who has repeatedly pledged to revive American manufacturing, on Wednesday said “big news” was coming that would be welcomed by U.S. autoworkers but he gave no details.

“There will be big news coming soon for our great American Autoworkers. After many decades of losing your jobs to other countries, you have waited long enough!” Trump said in a tweet.



The United States is in the middle of a renegotiation of the North American Free Trade Agreement (NAFTA) with Canada and Mexico, but the talks have been stalled by a dispute over auto provisions.

via Reuters

US Single Home Sales Fell in April

Sales of new U.S. single-family homes fell less than expected in April, but data for the last three months was revised lower.

The Commerce Department said on Wednesday new home sales dropped 1.5 percent to a seasonally adjusted annual rate of 662,000 units last month. March’s sales pace was revised down to 672,000 units from the previously reported 694,000 units.



Economists polled by Reuters had forecast new home sales, which account for about 11 percent of housing market sales, falling 2.0 percent to a pace of 679,000 units in April.

The government also revised sales data going back to 2013. The benchmark revisions showed sales in the first three months of the year not as strong as previously reported.

New home sales are drawn from permits and tend to be volatile on a month-to-month basis. They rose 11.6 percent from a year ago.

Via CNBC

U.S is a Net Energy Importer from Canada

Canada is the largest energy trading partner of the United States, based on the combined value of energy exports and imports. Although the value of bilateral energy trade with Canada has varied over the past decade, driven primarily by changes in the prices of oil and natural gas, the overall structure of bilateral energy trade flows has changed relatively little, with the value of U.S. energy imports from Canada consistently exceeding the value of U.S. energy exports to Canada by a large margin. Increasing energy commodity prices in 2017 led to growth in the value of both exports to and imports from Canada.

Based on the latest annual data from the U.S. Census Bureau, energy accounted for $18 billion, or about 6%, of the value of all U.S. exports to Canada. Energy accounted for $73 billion, or about 24%, of the value of all U.S. imports from Canada in 2017, up from 19% in 2016. Canada is the main source of U.S. energy imports and the second-largest destination for U.S. energy exports behind only Mexico.

Crude oil accounts for most U.S. energy imports from Canada, averaging 3.4 million barrels per day (b/d) in 2017. Canada is the largest source of U.S. crude oil imports, providing 43% of total U.S. crude oil imports in 2017. The value of U.S. crude oil imports depends on both volume and price. In 2017, the value of U.S. imports of Canadian crude oil increased, reaching $50 billion, as a result of both an increase in oil prices and an increase in volume. Canadian crude oil imported by the United States is largely produced in Alberta and consists mainly of heavy grades shipped primarily to the Midwest and Gulf Coast regions.

Until the removal of restrictions on exporting U.S. crude oil in December 2015, virtually all U.S. crude oil exports went to Canada. Since the United States began exporting more crude oil to other countries, Canada’s share of U.S. crude oil exports has fallen, although Canada still remains the largest destination for U.S. crude oil exports. In 2017, for the first time, the United States exported more crude oil, in total, to other countries (794,000 b/d) than it exported to Canada (324,000 b/d). U.S. crude oil exports to Canada are typically light sweet grades that are shipped to the eastern part of the country.

Bilateral petroleum products trade with Canada is relatively balanced in both volumetric and value terms. In 2017, Canada was the destination for 516,000 b/d of petroleum products, or 10% of all petroleum products exported from the United States. These exports were valued at more than $9 billion in 2017. However, the mix of petroleum product flows between the United States and Canada varies by product and region. For example, the United States is a net importer of gasoline from Canada, with significant volumes flowing from refineries in Eastern Canada to serve markets in the Northeast United States.

In contrast, very little of the petroleum products exported from the United States to Canada are finished transportation fuels. Pentanes plus, liquefied petroleum gases, and other oils constitute most U.S. product exports to Canada. Some of these products are used as a diluent to enable pipeline movement of heavy crude oils produced in Canada. Overall, U.S. petroleum product exports to Canada and other destinations have increased over the past decade.

Bilateral natural gas trade between Canada and the United States is dominated by pipeline shipments. Natural gas imports from Canada increased to 8.1 billion cubic feet per day (Bcf/d) in 2017, accounting for 97% of all U.S. natural gas imports. Total natural gas imports from Canada were valued at $7.3 billion in 2017. Most of Canada’s natural gas exports to the United States originate in Western Canada and are shipped to U.S. markets in the West and Midwest.

U.S. natural gas exports to Canada, which increased to 2.5 Bcf/d in 2017, mainly go from New York into the eastern provinces. Increases in pipeline capacity to carry natural gas out of the Marcellus and Utica shale formations increased flows of U.S. natural gas into Canada, reducing pipeline imports from Canada and increasing U.S. pipeline exports to Canada.

Electricity accounts for a small but locally important share of bilateral trade. In 2017, the value of U.S. imports of electricity from Canada increased for the second straight year, reaching $2.3 billion. The United States imported 72 million megawatthours of electricity from Canada in 2017 and exported 9.9 million megawatthours, based on data from Canada’s National Energy Board.

U.S Energy Information Administration

DAX Slides on Weak German PMIs, Trump Skepticism Over China

The DAX index has dropped sharply in the Wednesday session. Currently, the DAX is at 12,971, down 1.50% on the day. On the release front, German and eurozone PMIs missed expectations in the manufacturing and services sectors. In the US, the key event is the release of the Federal Reserve minutes from the May policy meeting. On Thursday, Germany releases Final GDP and GfK Consumer Climate, and the ECB will publish the minutes of its April policy meeting.

Asian markets are seeing red on Wednesday after US President Trump sounded skeptical over progress in trade talks between the US and China. On Tuesday, Trump said that he was ‘not really’ satisfied with the negotiations. Trump’s comments have confused the markets, as Treasury Secretary Steven Mnuchin declared on the weekend that the trade spat was ‘on hold’. Investor risk appetite has also waned as there is uncertainty whether North Korean leader Kim Jong-un will meet with President Trump next month.

Weak PMI data in May has sent the euro lower in the Wednesday session, as the currency dipped below the 1.17 line for the first time since mid-November. Investors are particularly concerned that both German and eurozone manufacturing PMIs dropped for a fifth straight month. German Manufacturing PMI posted its weakest gain in 16 months, while the eurozone indicator posted its worst reading in 18 months. These numbers, while certainly disappointing, should not cause any alarm, as the PMIs continue to indicate expansion in the services and manufacturing sectors. Still, the fact that growth was softer than expected could give ECB policymakers reason to re-evaluate the planned wind-up of its stimulus program in September.

  Fed Minutes to Drive Market as Trade Concerns Recede

  Another Turkish Lira flash crash

Economic Fundamentals

Wednesday (May 23)

  • 3:30 German Flash Manufacturing PMI. Estimate 57.9. Actual 56.8
  • 3:30 German Flash Services PMI. Estimate 53.1. Actual 52.1
  • 4:00 Eurozone Flash Manufacturing PMI. Estimate 56.1. Actual 55.5
  • 4:00 Eurozone Flash Services PMI. Estimate 54.7. Actual 53.9
  • 10:00 Eurozone Consumer Confidence. Estimate 0
  • 14:00 US FOMC Meeting Minutes

Thursday (May 24)

  • 2:00 German Final GDP. Estimate 0.3%
  • 2:00 German GfK Consumer Climate. Estimate 10.8
  • 4:00 ECB Financial Stability Review
  • 7:30 ECB Monetary Policy Meeting Accounts

*All release times are DST

*Key events are in bold

 

DAX, Wednesday, May 23 at 6:35 DST

Prev. Close: 13,169 Open: 13,134 Low: 12,956 High: 13,149 Close: 12,971

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Turkish Lira Collapse Continues

Wednesday May 23: Five things the markets are talking about

Geopolitical risks from Turkey to N. Korea, from China to Italy, have pressured global equities in overnight trade. U.S Treasuries, along with the ‘mighty’ dollar have found support, while crude oil prices dropped along with most commodities.

Yesterday, U.S President Donald Trump tempered market optimism over progress made in trade talks between the U.S and China and his historic summit with N. Korea taking place.

Elsewhere, market concerns over Turkey’s financial-market stability has driven the TRY ($4.8792) to successive record lows outright and is weighing on emerging-market (EM) currencies, while safe-haven currencies, like the yen and CHF remain better bid.

Later today, the Federal Open Market Committee (FOMC) will release minutes of its May 1-2 policy meeting (02:00 pm EDT), while the ECB follows suit tomorrow (07:30 am EDT). Also this week, a plethora of U.S debt sales adds to the busy agenda.

1. Global stocks bleed red

In Japan, the Nikkei share average suffered its biggest fall in two months overnight, as Trump comments again ignited worries about trade friction, hurting steelmakers and shippers among others. The Nikkei tumbled -1.2%, while the broader Topix skidded -0.7%.

Note: The Nikkei volatility index jumped to three-week high of 16.41.

Down-under, Aussie stocks fared better than most regional bourses after yesterday’s region-leading declines. Nevertheless, the S&P/ASX 200 recorded its fifth consecutive drop, the first since January. The index fell -0.2% as the energy sector slid -2.3%. In S. Korea, Samsung stock has been a noted laggard this month after its equity split. But they rebounded with authority overnight, making Korea’s Kospi a rare gainer. Following yesterday’s holiday, the index rose +0.3%.

In Hong Kong, stocks posted their biggest intraday fall in two-months overnight, pulled down by energy shares, which slumped after Beijing intervened to cool the red-hot coal market. The Hang Seng index ended down -1.8%, while the China Enterprises Index closed -2.1%.

It was a similar story in China, a slump in coal miners dragged the blue-chip CSI300 index down -1.3%, while the Shanghai Composite Index declined -1.4%.

In Europe, regional bourses have opened lower and have continued that trend over geopolitical concerns and weaker than expected macro data supporting risk-off trading. Lower commodity prices are dragging on material stocks, while energy stocks are underperforming.

Note: This morning’s major Eurozone PMI data is raising market concerns over the extent of the recent slowdown in the recovery – France, Germany and Eurozone readings all missed expectations.

U.S stocks are set to open deep in the ‘red’ (-0.6%).

Indices: Stoxx50 % at 3,538, FTSE -0.6% at 7,826, DAX -1.5% at 12,975, CAC-40 -1.3% at 5,566; IBEX-35 -1.6% at 9,973, FTSE MIB -1.9% at 22,778, SMI -1.1% at 8,842, S&P 500 Futures -0.6%

2. Oil prices slip on potential easing of OPEC supply curbs, gold lower

Oil prices have eased overnight as the possibility of higher OPEC output is weighing on the market, although geopolitical risks are expected to keep prices near multi-year highs.

Brent futures fell -37c, or nearly -0.5%, to +$79.20 a barrel, after climbing +35c yesterday. Last week, the global benchmark hit $80.50 a barrel, the highest print in four years. U.S West Texas Intermediate (WTI) crude have eased -21c, or nearly -0.3% to +$71.99 a barrel.

OPEC may decide to raise oil output as soon as next month due to worries over Iranian and Venezuelan supply and after the U.S raised concerns the oil rally was going too far.

Note: To date, OPEC-led supply curbs have largely cleared an inventory surplus based on the deal’s original goals.

Capping prices to a certain extent is the rising supply in the U.S, where shale production is forecast to hit a record high in June.

Note: API data yesterday showed that U.S crude and distillate stockpiles fell last week, while gasoline inventories increased unexpectedly.

Ahead of the U.S open, gold prices have slipped a tad, pressured by a firm dollar ahead of today’s FOMC minutes for May 1-2 meeting. Spot gold is -0.1% lower at +$1,289.71 per ounce. U.S gold futures for June delivery are down -0.2% at +$1,289.40 per ounce.

3. Sovereign yields fall

Italy continues to take center stage in the sovereign bond market as dealers focus shifts to the implementation of the coalition’s ambitious agenda and its potential ministers. Will the incoming government sully Italy’s relations with E.U?

Note: Italy’s government debt remains heavily dependent on support from the ECB’s bond purchases, and the country’s wider financial system is more closely linked to government debt markets than in much of Europe.

For German Bunds, the safety bid continues to gather pace as the Italian BTP sell-off spills over into the core market. Germany’s 10-year Bund yield has decreased -3 bps to +0.53%. The gap between Italy and Germany’s government bond yields has climbed to +192 bps, the highest in nearly a year – the spread has increased more quickly than at any time in the last five years.

Elsewhere, the yield on 10-year Treasuries has dipped -3 bps to +3.03%, the lowest in more than a week, while in the U.K, the 10-year Gilt yield has declined -5 bps to +1.523%.

4. The collapse in TRY continues

The collapse of the Turkish lira continues, with the currency proving vulnerable again overnight in thin trading. USD/TRY has rallied around +4% to a record high of $4.8522 ahead of the open after rating agencies sounded the alarm over plans by President Erdogan to tighten his grip on monetary policy.
The lira has fallen around -20% outright so far this month.

In the U.K, lower inflation (see below), is causing sterling to fall to a five-month low of £1.3346 against the dollar, although this partly also reflects dollar strength. Also, politics continues to play a role, with recent comments from a government official showing risks of a U.K leadership change have returned. EUR/GBP is up by +0.1% at €0.8778.

Note: With U.K inflation easing again m/m, the chances of a BoE interest rate increase any time soon are diminishing.

The EUR/CHF (€1.1611) cross continues to move away from its key level of €1.2000 (former SNB floor). The cross is again probing the lower end of its €1.16 area after testing the former floor only a few weeks ago.

5. U.K inflation at its slowest in 12-months

Data this morning showed that U.K consumer inflation was at its slowest in more than a year in April.

Consumer price inflation stood at +2.4% in the year to April, easing from +2.5% in March.

Digging deeper, according to ONS (office for National Statistics), falling airfare prices is contributing to cooling inflation. Airfares fell -0.2% on the month vs. a +18.6% rise in the same month last year. Also behind the softening was a slip in house prices in London.

Note: BoE Governor Carney told lawmakers yesterday that the bank might raise rates in “a few months.” Policymakers stood pat at their previous meeting as official data pointed to weak economic growth in Q1, 2018.

Forex heatmap

EUR/USD – Euro Slips to 6-Month Low on Weak German, Eurozone PMIs

After a quiet start to the week, EUR/USD has posted considerable losses in the Wednesday session. Currently, the pair is trading at 1.1726, down 0.45% on the day. On the release front, German and eurozone PMIs missed expectations in the manufacturing and services sectors. In the US, the key event is the release of the Federal Reserve minutes from the May policy meeting. On Thursday, Germany releases Final GDP and GfK Consumer Climate, and the ECB will publish the minutes of its April policy meeting. The US will release unemployment claims and Existing Home Sales.

Weak PMI data in May has sent the euro lower in the Wednesday session, as the currency dipped below the 1.17 line for the first time since mid-November. Investors are particularly concerned that both German and eurozone manufacturing PMIs dropped for a fifth straight month. German Manufacturing PMI posted its weakest gain in 16 months, while the eurozone indicator posted its worst reading in 18 months. These numbers, while certainly disappointing, should not cause any alarm, as the PMIs continue to indicate expansion in the services and manufacturing sectors. Still, the fact that growth was softer than expected could give ECB policymakers reason to re-evaluate the planned wind-up of its stimulus program in September.

The Federal Reserve will be in the spotlight on Wednesday, as analysts pore over the minutes of the May policy meeting. The Fed did not raise rates at the meeting, but a strong US economy has raised expectations that the Fed will press the rate trigger in June – according to the CME Group, the odds of a June hike stand at 100%. The markets will be looking for some guidance from the May minutes, and if the message from Fed policymakers is hawkish, traders can expect the dollar to post gains against the euro and other major rivals.

  Fed Minutes to Drive Market as Trade Concerns Recede

  Another Turkish Lira flash crash

EUR/USD Fundamentals

Wednesday (May 23)

  • 3:00 French Flash Manufacturing PMI. Estimate 53.6. Actual 55.1
  • 3:00 French Flash Services PMI. Estimate 57.1. Actual 54.3
  • 3:30 German Flash Manufacturing PMI. Estimate 57.9. Actual 56.8
  • 3:30 German Flash Services PMI. Estimate 53.1. Actual 52.1
  • 4:00 Eurozone Flash Manufacturing PMI. Estimate 56.1. Actual 55.5
  • 4:00 Eurozone Flash Services PMI. Estimate 54.7. Actual 53.9
  • 9:45 US Flash Manufacturing PMI. Estimate 56.6
  • 9:45 US Flash Services PMI. Estimate 54.9
  • 10:00 Eurozone Consumer Confidence. Estimate 0
  • 10:00 US Crude Oil Inventories. Estimate -2.5M
  • 14:00 US FOMC Meeting Minutes

Thursday (May 24)

  • 2:00 German Final GDP. Estimate 0.3%
  • 2:00 German GfK Consumer Climate. Estimate 10.8
  • 4:00 ECB Financial Stability Review
  • 7:30 ECB Monetary Policy Meeting Accounts
  • 8:30 US Unemployment Claims. Estimate 220K
  • 10:00 US Existing Home Sales. Estimate 5.56M

*All release times are DST

*Key events are in bold

 

EUR/USD for Wednesday, May 23, 2018

EUR/USD for May 23 at 4:30 DST

Open: 1.1778 High: 1.1790 Low: 1.1699 Close: 1.1726

 

EUR/USD Technical

S1 S2 S1 R1 R2 R3
1.1448 1.1613 1.1718 1.1809 1.1915 1.2025

EUR/USD ticked lower in the Asian session and has posted stronger losses in European trade

  • 1.1718 is fluid. Currently, it is providing weak support
  • 1.1809 is the next resistance line

Further levels in both directions:

  • Below: 1.1718, 1.1613, 1.1448 and 1.1313
  • Above: 1.18o9, 1.1915 and 1.2025
  • Current range: 1.1718 to 1.1809

OANDA’s Open Positions Ratio

EUR/USD ratio is almost unchanged in the Wednesday session. Currently, long positions have a majority (55%), indicative of trader bias towards EUR/USD reversing directions and moving higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Fed Minutes to Drive Market as Trade Concerns Recede

The US dollar is mixed ahead of the release of the minutes from May’s Federal Open Market Committee (FOMC) meeting. The central bank held rates unchanged but there is almost 100 probability of a 25 basis points rate hike at end of the June 13 meeting. Commodity currencies were higher at the beginning the North American trade session only to fall as commodity prices gave way. Safe haven currencies rose after US President Trump said the June 12 Peace summit between North and South Korea could be delayed.

  • US Crude oil inventories expected to drop by 2.5 million barrels
  • UK inflation to remain steady at 2.5 percent
  • US 10 year bond yields were flat ahead of FOMC minutes

EUR Still on Backfoot due to Italian Politics

The EUR/USD lost 0.07 percent on Tuesday. The single currency is trading at 1.1783 ahead of the release of the notes from the Fed’s monetary policy meeting. The EUR is still struggling with the fallout of the Italian coalition. The latest from the union between the 5 Star Movement and the League is the nomination of Giuseppe Conte as prime minister. The lack of experience from the lawyer and academic did not inspire much confidence with the markets.



With rise of euro scepticism in the area the last thing needed was criticism from German economists who do not agree that the deeper integration proposed by French President Emmanuel Macron. 154 German economists criticized the call to protect the currency union and instead bring back the argument that economic reform is needed with member states who are struggling. Also opening the door to creating an orderly process for nations to exit the Union.

The economic calendar this week will not any major releases with mostly lagging indicators in the agenda. European producer managers index (PMIs) and the minutes fro the European Central Bank (ECB) meeting could offer some insight but investors are looking forward to more guidance from the central bank which so far has remained very quiet on what are its plans after the massive quantitive easing program runs its course in September.

Loonie Gets Commodities and Trade Boost

The USD/CAD appreciated 0.26 percent in the last 24 hours. The currency pair is trading at 1.2819 as the loonie bounced back during the Asian trading session from disappointing retail sales data on Friday and a long weekend after the Victoria Day holiday. Commodity prices rose as the USD rally ended after trade tensions eased with China. Strong commodities in particular oil prices boosted the CAD as well a strong signal the US is more open to trade negotiations as the fate of NAFTA remains to be decided. Energy prices could not maintain the upward momentum and West Texas Intermediate fell below $72 but geopolitics is keeping energy prices at 3 year highs.


usdcad Canadian dollar graph, May 22, 2018

The economic calendar this week will be dominated by the release of the Fed minutes. The market is pricing in a June rate hike and investors will scan the notes from the Federal Open Market Committee (FOMC) looking for further clues on the path of monetary policy. Fed members have supported two or more rate hikes this year. The Bank of Canada (BoC) is expected to hold its rate untouched in May at 1.25 percent after a string of soft data is not putting as much pressure as earlier in the year.

Core retail sales dropped by 0.2 percent instead of the 0.5 percent expected growth. Tuesday’s release of wholesales sales beat the forecast with a 1.1 percent gain and an upward revision to the previous 0.8 percent loss that now stands at –0.4 percent.

Oil Reaches 3 Year High on Supply Concerns

West Texas Intermediate is trading at $71.98 and trading near 3 year highs due to geopolitical events. The fundamentals of the energy markets call for a lower valuation as demand has not grown to levels that justify current prices. The Organization of the Petroleum Exporting Countries (OPEC) agreement with other major producers, most notably Russia, accomplish the goal of stability but it is now the uncertainty in the Middle East that drives price action.


West Texas Intermediate graph

Investors are aware of a risk that a rapid decline could come, but it could be achieved only if there is political stability in the region, a long shot at this point. Or if there are significant changes in how big oil producers not part of the deal react to higher prices. The US has slowly ramped up their production but with fundamentals only in the periphery at this time it could be some time before the market prices in higher oil production.

The situation in Venezuela and Iran could end up keeping prices at 3 year highs as supply disruptions have been the most effective factor dictating crude prices. Timing wise the start of the driving season in North America will be supportive as season demand rises.
Market events to watch this week:

Wednesday, May 23
4:00am AUD RBA Gov Lowe Speaks
4:30am GBP CPI y/y
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Meeting Minutes
Thursday, May 24
4:30am GBP Retail Sales m/m
7:30am EUR ECB Monetary Policy Meeting Accounts
Friday, May 25
4:30am GBP Second Estimate GDP q/q
8:30am USD Core Durable Goods Orders m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

Italian Bond Yields Off Highs after Six Days of Selling

Italian government bond yields came off 14-month highs on Tuesday as the market paused after six days of heavy selling on concerns over the high-spending policies mooted by a potential coalition government in the euro zone’s third-largest economy.

The likelihood of a new Italian government being formed by the 5-Star Movement and the far-right League has pushed Italian 10-year yields up nearly 70 basis points since the start of the month, potentially making the debt attractive again for some.

“We’re in the realms of markets being very technical, and the fact that there’s no real news overnight is an opportunity for some to add a little to their positions,” said Mizuho strategist Peter Chatwell, though he cautioned against reading too much into the moves.

Italy’s 10-year government bond yield fell 2.5 basis points to 2.31 percent, well below the 14-month high of 2.418 percent hit in earlier trade.

The closely watched Italy/Germany 10-year bond yield spread hit 189.6 bps before settling at 182 bps, still wider than any closing price since June 2017.

Spanish and Portuguese yields also came sharply off the multi-month highs touched on Monday, dropping 8-12 basis points.

Yet they provide an alternative for Italian BTPs given the uncertainty around that country’s future, according to Mizuho analysts.

“We expect Spanish bonds to find demand as a BTP substitute, and see best value in the five-year sector on the curve,” they said in a note.

Italy’s M5S and the League have proposed Giuseppe Conte, a little-known law professor, as prime minister to lead the coalition, which many fear will boost spending and raise the country’s debt levels.

“Conte looks rather like a puppet for the 5-star and League leaders to push through their agenda,” said Commerzbank strategist Christoph Rieger.

He added that though the programme put forward by the two parties does not appear as radical as first rumoured, it is clear that Italy is now “clearly abandoning all fiscal restraint”.

The cost of insuring against Italian government debt souring was at its highest in 7 months with Italy’s 5-year credit default swaps (CDS) rising to 142 bps, according to IHS Markit.

Elsewhere, higher-grade euro zone government bond yields moved 1-4 bps higher as sentiment improved across markets, and European stocks rallied as well.

The yield on Germany’s 10-year government bond, the benchmark for the region, was 4 bps higher at 0.56 percent.

Reuters