The U.S. Dollar improved further over our holiday weekend as trouble in Italy has shaken markets and changed expectations of European stability.
Shockingly, the Five Star Movement and Northern League of Italy failed to build a government after the newly chosen Prime Minister Giuseppe Conte had his choice for finance minister vetoed by the President. As a result, Mr. Conte quit in what may be a record for the least time in office. He shrugged his frustrations with the President and said he really gave it his best efforts.
New elections may be held soon as both parties are calling for major protests and for the will of the people to be heard. President Sergio Mattarella has placed a finance minister of his liking because the one proposed by the coalition was known for wanting to leave the European Union. Calls for impeachment and scandal are taking over most headlines after a holiday for the U.S. and the U.K. Equities are down all across the globe and the Euro is down to its weakest level in ten months. USD safe-haven role is in full effect with advancement across the board.
The Euro is consuming all news this morning as the world digests the quickly worsening government crisis in Italy. Indeed, all issues with bringing together a coalition, establishing a working cabinet, and establishing some sense of leadership are coming to fruition at once. An outsider was chosen as Prime Minister only to resign within 72 hours while the Northern League asks its supporters to come out in droves to the streets of Rome on June 2nd, an important date in Italian history that marks the start of post-WWII times.
Many observers are also scared for the parallels between the current situation where a party is calling for ousting the government and when Benito Mussolini did the same in the 1930s. Ultimately, this imagery and the repercussions on bonds, growth, and currency value are tremendous. Perhaps this is the moment Italy becomes the EU’s new Greece.
The Pound is trading within its weakest levels in six months as new analyses on the economic effects of Brexit have been released. Philip Hammond, Chancellor of the Exchequer, says that the U.K. will need to stay closer to the EU rulebook than most decision makers in order for London to stay active in financial markets post-Brexit. Additionally, former rate setters at the Bank of England think “Brexit is a disaster,” as they break down the issues with firms that just cannot invest with the lack of clarity. They call the U.K., the “sick man of Europe.”