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26 Feb 2013
Fundamental Morning Wrap: No Renaissance as Italian politics threatens to choke Europe
A look through this mornings institutional research shows that Europe is firmly in focus, with the fall out from the Italian elections taking center stage, with political deadlock, the resurgence of Berlusconi, again and the probability of renewed elections all weighing on risk sentiment.
EUR/USD
Westpac analysts start by noting that the Italian elections represent an important step in the deterioration of European politics. They note that all previously held ideas of Berlusconi being finished, again render conventional wisdom redundant, and Italy´s best hope is for Bersani to attempt to build a “Grand Coalition” to avoid gridlock. Geoffrey Yu and Gareth Barry of UBS note that the stalemate holds similarities with the Greek situation in May 2012, a fact that hasn´t escaped investors. They feel that EUR/USD could decline further, weighed down by Italian bonds and stocks.
Jane Foley of Rabobank adds to the theme, noting that early year optimism has been given a sharp wake up call following the Italian elections. Jim Reid of Deutsche Bank continues to highlight that Monti´s policies have acted almost as a benchmark for the Eurozone approval rating, and his dismal polling at 10% underline the mood of the Italian public. Danske Bank analyst are expecting an interim government to be installed before further elections take place. Kit Juckes of SocGen feels that 1.3000 will be the key level for EUR/USD and a move lower could see some real momentum develop.
GBP/USD
Geoffrey Yu and Gareth Barry of UBS note that while a lot of GBP selling was a knee jerk reaction to the UK downgrade, a significant amount could have come as part of a technicality as some funds are prohibited from holding less than AAA assets. Jim Reid of Deutsche Bank, and Kit Juckes of SocGen both note that GBP received a boost yesterday, following Eurozone insecurity, showing that Sterlings days as a safe haven currency are not over just quite yet.
Macro
Jim Reid of Deutsche Bank notes that Bernanke´s testimony today will be closely watched, however, he is not expecting him to express a meaningful change in viewpoint at this juncture due to lingering uncertainty and geo-political sensitivity over the issue of currency valuation.
NAB Bank focus on the Chinese miracle, and ask whether it is sustainable. They list a variety of factors ranging from population demographics, labour market conditions, production shifting offshore and exchange rate flexibility as reasons worthy of consideration for the years ahead.
EUR/USD
Westpac analysts start by noting that the Italian elections represent an important step in the deterioration of European politics. They note that all previously held ideas of Berlusconi being finished, again render conventional wisdom redundant, and Italy´s best hope is for Bersani to attempt to build a “Grand Coalition” to avoid gridlock. Geoffrey Yu and Gareth Barry of UBS note that the stalemate holds similarities with the Greek situation in May 2012, a fact that hasn´t escaped investors. They feel that EUR/USD could decline further, weighed down by Italian bonds and stocks.
Jane Foley of Rabobank adds to the theme, noting that early year optimism has been given a sharp wake up call following the Italian elections. Jim Reid of Deutsche Bank continues to highlight that Monti´s policies have acted almost as a benchmark for the Eurozone approval rating, and his dismal polling at 10% underline the mood of the Italian public. Danske Bank analyst are expecting an interim government to be installed before further elections take place. Kit Juckes of SocGen feels that 1.3000 will be the key level for EUR/USD and a move lower could see some real momentum develop.
GBP/USD
Geoffrey Yu and Gareth Barry of UBS note that while a lot of GBP selling was a knee jerk reaction to the UK downgrade, a significant amount could have come as part of a technicality as some funds are prohibited from holding less than AAA assets. Jim Reid of Deutsche Bank, and Kit Juckes of SocGen both note that GBP received a boost yesterday, following Eurozone insecurity, showing that Sterlings days as a safe haven currency are not over just quite yet.
Macro
Jim Reid of Deutsche Bank notes that Bernanke´s testimony today will be closely watched, however, he is not expecting him to express a meaningful change in viewpoint at this juncture due to lingering uncertainty and geo-political sensitivity over the issue of currency valuation.
NAB Bank focus on the Chinese miracle, and ask whether it is sustainable. They list a variety of factors ranging from population demographics, labour market conditions, production shifting offshore and exchange rate flexibility as reasons worthy of consideration for the years ahead.