Trump’s olive branch and new Italy crisis

After a very good week for equity markets last week, Europe is pausing for breath, assessing recent tweets from President Trump alongside developments in Italy.

Markets are hoping that the olive branch extended by President Trump to Chinese telecoms company ZTE, having previously imposed draconian sanctions on the company, and other supportive tweets yesterday suggesting that the trade talks this week would “all work out”, are an indication that he is stepping back from his hard-line approach.

However, while positive sentiment is a good start, this week’s trade talks between China and the USA are critical to turn this into decisive action and stop the various trade disputes between the US and China as well as the US and Europe from beginning to snowball into an all-out trade war.

Following Donald Trump in the US and Brexit in the UK, Italy is the latest major economy to choose populist governments or policies. After lengthy post-election negotiations, the populist Five Star Movement is poised to join a coalition government with the extreme right-wing League. So far, their headline policy proposals include lower taxes and earlier retirement.

Italy has struggled for decades with government deficits and resultant inflation, and there is a clear danger that the country’s finances may, yet again, be about to spiral out of control.

iShares FTSE MIB UCITS ETF Inc GBP (IMIB)

Source: interactive investor     Past performance is not a guide to future performance

Past performance is not a guide to future performance

Oil prices have come off their recent highs, as UAE’s energy minister confirmed that OPEC have spare capacity and will mitigate any negative impact of Iranian sanctions.

Speculators had pushed oil prices to 2014 highs on President Trump’s decision to pull out of the multilateral nuclear agreement and reimpose sanctions against Iran, but the froth has been pared back on the prospect of additional supply elsewhere.

The European Union is still looking to preserve the nuclear deal, but should that not happen, with the US now the largest oil supplier in the world and US oil-rig counts rising, along with confirmation of an OPEC buffer zone, there is enough to mitigate against the impact of any potential fall in Iranian supplies.

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