Pessimistic Markets over Italian Referendum – 23 Nov 2016

Pessimistic Markets over Italian Referendum – 23 Nov 2016

U.S shares end at record highs for a second day while oil remains steady and USD continues to move higher.
Italy is a big risk for the unity of Europe, Italian non-performing loans are in very high percentage compared to other countries. Italian referendum continues to seem as a huge risk event from the vast majority of the media. Unquestionably a ‘’NO’’ vote in the Italian referendum can be an event risk but it can be manageable and not lead Europe into disruption as most expect. Matteo Renzi has maintained his stance that he will resign if he loses the referendum however we have our doubts about it. Even if Renzi resigns over the loss of the referendum to another prime minister with similar European friendly views, the other PM will replace him before Italy goes to a general election in the distance summer of 2017.

It is very likely that USD is at such high levels in order to react more on today’s busy U.S macroeconomic calendar as the aggressive upside level at this stage seems a bit limited. We suggest to buy today’s lows of DAX and Eurostoxx for today as the ECB continues easing policy and other major banks have eliminated the potential ‘’risks’’ of Brexit and Trump.

Markets have bet more than $2.5 trillion that interest rates during Trump’s government will move much higher while inflation and growth will accelerate. Markets seem to trust Trump a lot and this is very important point. Most probably markets were pretending to be worried about Trump’s possible election victory, otherwise they could not invest $2.5 trillion within the first few days from the election result.

Daily Key points:
• Global Private Non-Financial debt is double the 1929 levels (prior to the Great Depression)
• Poll: A narrow majority (53%), say they think Trump will do a very or fairly good job as president, and 40% say they have a lot of confidence in Trump to deal with the economy
• The Russell 2000 Small Cap Index is up 41% from the February lows
• Germany’s Schaeuble says he would prefer to start ending unusually expensive QE as soon as possible
• US existing home sales hit more than 9.5-year high
• OPEC oil production-cut deal is likely, officials say
• OPEC Discussing 4.5% Oil Production Cut as Main Scenario-Sources
• Dow Tops 19000 for First Time while S&P 500 closes above 2200 for the first time
• Trump won’t pursue case against Clinton, Conway says
• Dollar re-approaches 2003 highs
• German two-year bond yields have fallen to a record low

Daily Economic calendar:
Country Event Importance Previous Expectations Follow Times
France French Flash Manufacturing PMI Medium 51.8 51.5 EUR 11:00
Germany German Flash Manufacturing PMI Medium 55 55 EUR 11:30
Germany German Flash Services PMI Medium 54 54 EUR 11:30
Europe Flash Manufacturing PM High 53.5 53.2 EUR 12:00
Europe Flash Services PMI Medium 52.8 53.1 EUR 12:00
UK Autumn Forecast Statement High n/a n/a GBP 15:30
USA Core Durable Goods Orders m/m High 0.1 0.2 USD 16:30
USA Flash Manufacturing PMI Medium 53.5 53.5 USD 16:45
USA New Home Sales Medium 593K 591K USD 18:00
USA22 University of Michigan  Sentiment Medium 91.6 91.6 USD 18:00
OIL Crude Oil Inventories Medium 5.3M 0.3M OIL 18:30
USA FOMC Meeting Minutes High n/a n/a All indices 12:00

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