Global Shares Rise as The Markets Reassured Italian Government, US Private Sector Added 230K Jobs

The single currency restores a part of positions on Wednesday morning after a publication in the newspaper ‘Corriere Della Sera’ that the government intends to reduce the budget deficit to 2% by 2021 following the turbulent reaction of the markets during the week and criticism from the European Parliament. The common currency is trading at 1.1575, while yesterday it fell to 1.1505 at some point. The markets welcomed this news as a sign that Italy agrees to follow the general rules. It would cost more for the Italian government to stick to the initial objectives of the budget deficit of 2.4%, as the yield’s growth to 4-year highs promised a significant increase in debt service costs exceeding 132% of GDP.

US private payrolls grew by 230,000 in September, well ahead of the 185K analysts’ expectations.

Despite some restoration of the single currency position, it is hard to expect that the populist government of Italy has taken a lesson that the markets gave to it. Such outbreaks from the Italian assets can become commonplace in the coming quarters. The shares of the banking sector of the country could stay particularly vulnerable.

The dollar index has been declining this morning for the first time since last week due to the impulsive reaction of the euro, but the U.S. currency still has chances to develop its offensive. Powell, the Fed Chairman, noted a “remarkably positive outlook” for the U.S. economy, capable of postponing Trump’s attempts to undermine the established World Trade order.

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Powell is Trying to Persuade Markets

Powell’s confidence is mostly ignored by the markets. According to the CME’s Fed Watch tool, market participants expect (80% chance) just one increase in December this year and only one more (36%) in the next 12 months, against 2-3, which are predicted by FOMC members. Apparently, Powell’s hawk rhetoric is aimed at changing these expectations.

In turn, these changes are a strong potential support factor for the dollar. Earlier this spring, we watched the dollar rally, when the markets increased their expectations from 2 to 4 raise rates, in line with the initial FOMC expectations.

This article was written by FxPro