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Italian budget jitters were dominating the European session.

Key Quotes:

“Italian yields surged 20-35 bps with Italian shares down nearly 4%.”

“Other European bourses fell 0.5-1.5%.”

“The Italian budget negotiations arrived at a deficit of 2.4% of GDP, considerably larger than the level the previous Government targeted. Markets didn’t like it, selling Italian bonds and equities and the euro to boot. That’s understandable, given the undeniable pressure on the sustainability of Italy’s fiscal position. But there is as-yet no detail on what the money will be spent on.”

“On the face of  it,  the details don’t perhaps matter too much. Government debt is an estimated 133% of GDP.”

“Interest expenditure is 3.6% of GDP (and will rise further if Italian bond yields sustain the sharp move higher, with the 10-year yield up more than a quarter of one  percent  on Friday), the primary surplus is set to shrink, and the preventative arm of the stability programme agreed with the EU in 2017 looks at risk.”

“On the other hand, the example of Greece demonstrated that strict austerity is not an effective means of repairing the balance sheet, as it can shrink the economy so dramatically as to undermine the tax base.”

“Italy must get growth going, or the medium-term objectives of fiscal stability are undermined anyway.”

“A one-off cot-case? Not in the big picture. US Government debt to GDP ratio is also in triple figures, and France’s is getting awfully close.”

“US Treasury yields and equities were little changed, with Kavanaugh testimony dividing the nation.”

“In equities, financial declines were offset by utility gains.”

“Oil rose with sell-side analysts predicting USD100/bbl prices (WTI +1.6% to USD73.25/bbl).”

“Gold rebounded 0.7%, closing at USD1190.88/oz.”