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The political situation presented a surprise again to the markets. On Friday, we expected a smooth exit of investors for the weekend and even quite a calm Monday. However, the Pedro Sanchez from Socialist Party of Spain initiated a vote of no confidence motion in the government and Prime Minister Mariano Rajoy because of the renewed scandal over corruption in the higher echelons of power. The Party of Socialists was accepted even by the "Citizens" party, which was allied with Rajoy. The members of the ruling People's Party (M. Rajoy) were accused by the court of evading taxes, fraud, and money laundering.
On this news, state Spanish bonds jumped in yields (1-year-olds from -0.348 to -0.198% at the moment, 10-year from 1.390% to 1.530%). They were joined by Italian government bonds, which were also pressured by their own political problems (annual yields increased from -0.190% to 0.050%, for 10-year-olds from 2.413% to 2.470%). Here, the markets are afraid of the appointment of Paolo Savona, the famous aggressive Eurosceptic, to the post of Minister of Finance. Rating agency Moody's warned that Italy's credit rating is close to a downward revision (Baa2). The situation is aggravated by the fact that previously elected to the post of Prime Minister of Italy Giuseppe Conte refused to lead the coalition government.
The US economic statistics data came out mixed. As the volume of durable good orders in April contracted more than expected by -1.7% against -1.3%, but the previous growth for March was revised to increase to 2.7%. The base orders index added 0.9% against the forecast of 0.5%. The final estimate of University of Michigan to consumer confidence index in May was revised down to 98.0 from 98.8. As a result, the single European currency lost 70 points per day.
Today is a holiday in the USA. During the Asian session, the euro managed to redeem and it grew by 50 points. It is believe that these were closing sales, respectively, the decline in the euro will show a new wave. It was reported that Italian President Sergio Mattarella refused to approve Savona as the Minister of Finance. We are waiting for the president to appoint new re-elections and the euro at 1.1600 and further at 1.1555.
* The presented market analysis is informative and does not constitute a guide to the transaction.
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