Di Maio Says Italy Doesn't Want Debt to Spiral Toward 140%


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17 May 2019



Video commentary for May 16th 2019



Eoin Treacy's view

A link to today's video commentary is posted in the Subsciber's Area. 

Some of the topics covered include: bitcoin pauses, gold pulls back, Dollar strong, stock markets steady, bond ease, monetary policy beats most other factors most of the time. defensives outperforming. 



Theresa May Promises to Set Out Timetable for Quitting in June

This article by Tim Ross for Bloomberg may be of interest to subscribers. Here is a section:

Theresa May took a major step closer to leaving office, in the face of growing demands to quit as U.K.
prime minister over her failure to deliver Brexit.

The embattled premier agreed to set out a timetable for her exit early next month, after she puts her Brexit deal to another vote in the House of Commons, the Conservative Party’s most senior rank-and-file politician Graham Brady announced. The pound fell.

“We had a very frank exchange with the prime minister,” Brady told reporters on Thursday, after he and other senior Conservatives met her for a showdown behind closed doors. Brady said he and May agreed that they will meet again to finalize the timetable for electing a new Conservative leader after the Withdrawal Agreement Bill is put to a vote in the House of Commons in the first week of June. This meeting will happen regardless of whether the Brexit deal law is approved or rejected, he said.


Eoin Treacy's view

Theresa May has had the unenviable job of trying to shepherd disparate groups within her own party towards a conclusion everyone could get behind. It was a nigh on impossible job and she has failed to get a deal through parliament. The Labour party have no incentive to help out because they are eying the next election and would be punished by their membership if they were seen to be helping out Conservatives. In my view, that is the primary reason cross party talks are failing.



Di Maio Says Italy Doesn't Want Debt to Spiral Toward 140%

This article by Jerrold Colten and Chiara Albanese for Bloomberg may be of interest to subscribers. Here is a section:

Days after his coalition partner roiled markets by threatening to breach European Union fiscal rules, Deputy Prime Minister Luigi Di Maio of the Five Star Movement said Italy’s government wants to rein in the debt load to avoid it spiraling.

“Nobody wants to go over 140%,” Di Maio said during an event in Florence. “Otherwise, the debt-to-GDP level would be out of control.” He added that some investments could be financed by increasing the deficit level provided that it boosts economic output, limiting the debt ratio.

The country’s debt-GDP level was 132.2% at the end of last year.

"I think that 130% is already a lot," European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters in Brussels when asked about Italy’s debt.


Eoin Treacy's view

Italy has a domestic economy that is struggling and a group of high-profile exporters heavily reliant global growth. Trade war worries are weighing on sentiment particularly as the populist government seeks to modestly breech EU fiscal deficit limits.



Stock Rally Gains Momentum on Risk Bet, Bonds Fall

This article by Randall Jensen and Vildana Hajric for Bloomberg may be of interest. Here is a section:

This has become a pattern where you get a big aggressive statement from the administration that might impact trade and then the market reacts aggressively as it did on Monday and then it seems to back off,” Chicago-based Susan Schmidt, head of U.S. equities at Aviva Investors, said in an interview. “Business is still doing well. I think if the market can stay focused on the facts and the data, then I think the market will hold.”

Strong economic data and earnings, along with hints from the Trump administration that it may be willing to compromise on trade has helped stocks rebound from the battering they took when the tariff battle with China flared. But the headlines have come fast and furiously, most recently President Donald Trump signed an order that’s expected to restrict Chinese telecommunications firms from selling in the U.S.


Eoin Treacy's view

China’s dependence on global trade is far greater than the USA’s and the market has been voting with its feet by both supporting the Dollar, the bond market and the stock market since the trade war began.



The future of Emerging Markets

This report from Dimitris Melas for MSCI may be of interest to subscribers. Here is a section:

The rationale for allocating to emerging markets rests on three pillars: Superior economic growth has resulted in positive market returns historically, low correlation within emerging markets and across asset classes has provided diversification benefits, and relative scarcity of information has created opportunities for active portfolio management. Long-term historical data confirms that emerging markets have provided positive long-term risk-adjusted excess returns and enhanced portfolio diversification. Their diversity has led to high cross-sectional return dispersion, both at the country and at the security level, creating opportunities to add value through active country allocation and stock selection. Omitting this equity segment would have introduced a performance drag on global indexed strategies and reduced the investment opportunity set of active strategies. The opening of the domestic Chinese capital market and its integration into international markets is likely to have a transformative effect on the emerging markets equity segment. MSCI introduced domestic Chinese equities (A shares) into the MSCI Emerging Markets Index in June 2018 at a reduced weight. Chinese equities listed in mainland China and Hong Kong currently represent 30% of the index but could grow to over 40% when A shares are included at full weight. The growing size of China within emerging markets raises the prospect for investors of making dedicated allocations to China. Whether investors make separate China allocations or continue to seek opportunities across global emerging markets, the segment likely will remain an essential element of the global equity universe in the future.


Eoin Treacy's view

China already dominates the emerging markets sector and its influence is likely to further increases with the increased weighting of A-Shares. At 40% of the Index it will become increasingly difficult to invest in emerging markets without gaining at least some exposure to China. That will be either because of direct participation or because of the reliance of some markets on Chinese demand.








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