24 July 2018 by lberuti
Over the last couple of weeks, investors had plenty to digest with the beginning of the reporting season and they spent most of their time scrutinising companys’ results. Nevertheless, macroeconomic considerations are still present in the background and the recent tensions on Italy’s 10-year interest rates have not gone unnoticed. Mr Salvini’s remarks that he would prefer to keep within EU budget restrictions, but that “if (Italy had) to go above those limits for the good of the Italians, that (would) not be a problem for (him)” revived investors’ concerns. It puts him at odds with Finance minister Giovanni Tria, who said the Italian government will implement its program within the EU limits so as not to trigger higher borrowing costs, damage growth and worsen the country’s debt burden. Investors have so far banked on Mr Tria to bring a degree of moderation to Italy’s populist government, but it is the second scare they had in a week after it was rumoured in the press that he might be pushed out in a power struggle over who should lead the state development bank. That environment is not helping, and as you can see in the above grapple, the risk premia of financial institutions has started to drift wider and have underperformed their peers during the last 5 trading sessions.