Dollar Sees Flat Consolidation While The Equity Advance Fizzles In Europe

The US dollar is trading inside yesterday’s ranges against the euro and yen. The dollar’s tone matches the consolidation in the debt market ahead of today’s slew of US data and tomorrow’s holiday. Tokyo markets were on holiday.  

Sterling is trading heavily. Its half-cent loss (0.4%) is the biggest decline among the majors today. In the larger picture, it is within the range set on Monday. Hammond’s Autumn Statement appears to have been largely leaked.  

Small spending increases for infrastructure and help for home buyers are expected to be featured. The market appears to feel comfortable with the projected Gilt and bill issuance. The projections for slower economic activity is translated into a larger deficit, and these cyclical expenditures seem to absorb the appetite for May’s wing of the Tory Party. That said, monetary policy, with a cheap lending facility, base rate cut, resumption of QE, and sterling’s decline have already been deployed to support an economy, which continues to perform well.  

There have been two news developments. The first is an update on Italy’s Renzi’s intentions. The referendum at the end of next week looks likely to fail. There will no more polls. Renzi complicated the situation by threatening to resign if the referendum lost.  Although he had backed away from this, his frustration appeared to grow, and he returned to talking about his future.  His trump card was to call for early elections.  The parliament term ends in 2018. The problem is that electoral reform for the lower house has already been approved, but the referendum could reject reform of the Senate, leaving different electoral laws for the two Chambers.  The Deputy Secretary of Renzi’s PD has suggested the election may be brought forward to next summer, though it is not immediately clear if Renzi would stay on until then. 

 Italian assets are mixed.  Equities are heavy, and the FTSE Milan is entering the downside gap created by yesterday’s higher opening.  Italian bank shares are off almost 3% to the index’s lowest level since early October.  It is the seventh decline in the past eight sessions.  Italy’s 10-year bond yield has risen six basis points, the most in Europe today, while the two-year yield has risen a couple of basis points, it is up less than Spain’s comparable yield.