(19 JUNE 2018)DAILY MARKET BRIEF 2:Italy’s trade balance drops in April as further uncertainty looms

Under strong uncertainties with regard to recently formed coalition of both the League and the 5 Star movement at that time, Italy’s April trade balance strongly decreased, given at EUR 2’938 million (prior: EUR 4’531 million), due to a strong increase in imports (+0.70%) while exports remained flat (+0.10%). On equity side however, the outlook is rather different, as Italy’s FTSE MIB surged by 7% (year-to-date: -0.28%) during the single month of April, an impressive rise compared to Europe’s leading blue-chip index Euro Stoxx 50 which rose by +5.21% (year-to-date: -2.28%) during the same period.

One could think that the situation improved since the Italian government was officially built, however the truth is very different. Indeed, investors’ concerns with regard to budget extension are confirmed, as recent rumours confirm that Finance Minister Giovanni Tria will be willing to renegotiate a balanced-budget target extension by 2021 from 2020 expected during EU summit in Luxemburg on Thursday. Italy’s government priorities will also be discussed on this occasion.

Accordingly, as continued fears among EU countries continues (e.g. Germany/EU immigration disagreement, Brexit-EU divorce), we would expect further weakness with regard to the EUR/USD for the ongoing week. Currently trading at 1.1586, the pair is expected to decrease along the 1.1565 range in the short-term.