Interestingly markets seem to be ignoring the political risk building in Italy. Peripheral European yield spreads failed to react to Northern League and 5-Star have reached a tentative coalition agreement. Despite the dramatic cost this coalition might have on Italy government spending Euro continues to firms against the USD. Industrial metals such as copper and iron ore are threating to break higher conveying a renewed risk appetite.
President Trump’s decision to withdraw from the JCPOA should be considered a major geopolitical shift. The unexpected announcement has pushed oil prices above $77 / bbl for the first time since 2014. Tighter supplies are forcing analysts to raise price forecasts for 2018. Rising prices, in addition to cost cuts is allowing oil companies once again turn a profit. Valuations have lagged oil price due to skepticism over diminishing supply glut but the removal of Iranian oil will likely have investors allowing for higher forward outlook. On the FX front we anticipate commodity currencies CAD, NOK and AUD to improve.
By Peter Rosenstreich