Italian Politics Weigh On Bond Yields: 5 Things The Global Markets Are Talking About Today

Trade talks, emerging market woes and central bank decisions are dominating asset price moves this month. Add in geopolitical risks and U.S. impeachment possibilities, and market volatility is expected to remain elevated for some time.

The dollar has extended last week's gains, while U.S. yields have come under pressure again. In commodities, oil rebounded from its biggest weekly loss in two months on speculation of a crude supply shortage.

Elsewhere, the Swedish Krona edged higher after Sunday's inconclusive general election — neither the Social Democrats bloc nor the opposition Alliance bloc won enough votes to form a majority government.

On the central bank front, the Bank of England (BoE) and European Central Bank (ECB) will dominate proceedings this week, while the Fed will release its Beige Book in preparation for its FOMC meet later this month. Japan will publish its revised Q2 GDP.

With this in mind, here are five things the global markets were talking about on Monday.

1. Stocks Remain Mixed

A sell-off in Chinese stocks pushed a number of Asian bourses to a 14-month trough Monday morning. The market is bracing itself for an escalation in the U.S.-China tariff row.

However there were a few exceptions. In Japan, the Nikkei share average snapped a 6-day losing streak after robust revised GDP data trumped trade war worries. The Nikkei share average rose 0.30 percent, while the broader Topix gained 0.20 percent.

Australian shares ended flat as gains in health care and energy were offset by financials and materials losses. The S&P/ASX 200 index fell 0.03 percent at the close of trade, its eighth straight session of losses. The benchmark declined 0.3 percent on Friday. In South Korea, stocks ended a 3-day losing streak. The Kospi edged 0.31 percent higher.

In Hong Kong, equities ended lower as the market braced for trade war escalation. The Hang Seng index ended down 1.3 percent, while the China Enterprises Index lost 1.2 percent.

In China, stocks ended lower on new tariff threats as Apple suppliers were hit by another Trump tweet. At the close, the Shanghai Composite Index was down 1.2 percent, while the blue-chip CSI300 index was down 1.45 percent.

2. Oil Higher As U.S Drilling Stalls And Iran Sanctions Bite

Oil prices rallied overnight as data shows that U.S. drilling stalled. Investors further anticipate lower supply once new sanctions on Iran kick-in from November.

Brent crude oil rallied 1.4 percent to +$77.92 per barrel, while U.S. light crude was 7c higher at $68.45.

Data from Baker Hughes on Friday showed that U.S. drillers cut two oilrigs last week, bringing the total count to 860. Note: The number of rigs drilling for oil in the U.S has stalled in the last four months, which suggests an increase in well productivity.

3. BTP/Bund Yields Tighten

The gap between Italian and German 10-year borrowing costs is at its tightest in six weeks after Italy's Economy Minister Giovanni Tria predicted yields would drop as the government laid out its budget for 2019.

Tria said on Sunday that Italian bond yields would fall as the new government began to implement policies to boost the economy with prudent fiscal measures.

Note: Italian debt rallied this month after the government indicated that Italy's upcoming budget would stay within E.U. fiscal rules.

The BTP/BUND 10-year bond yield spread tightened to 234.1 bps, its lowest level in six weeks, and 55 bps below last week's widest levels.

4. Dollar In Demand On Pullbacks

Global trade tensions sees the USD in demand on pullbacks as President Trump tweeted that the U.S. has further potential tariffs against China in the works if needed.

EUR/USD (€1.1583) off its worst level as Italian officials continued their pacifying comments on the 2019 budget. Technical traders have noted that €1.1750 remains the key resistance for now.

On the emerging market front, currency pairs again remain on the defensive. USD/INR hit a fresh record high at $72.68 that prompted India to perform some verbal intervention. The rupee weakness is attributed to the release of the Q2 current account balance that recorded its widest deficit in five years.

5. U.K Economy Accelerated In July

Data this morning showed that economic growth in the U.K. accelerated in July, as warm weather powered consumer spending and construction.

According to the ONS, the U.K economy expanded 0.3 percent on month in July — a faster pace than the 0.1 percent monthly expansion recorded in June. Note: Growth in the quarter ending with July was 0.6 percent compared with the previous three months, or 2.4 percent on an annualized basis.

The data would suggest that the U.K. economy is set for another quarter of growth despite little progress in Brexit negotiations.

Digging deeper, ONS data showed that the U.K's goods trade deficit with the rest of the world narrowed in July, to £10 billion from £10.7 billion in June, as exports grew faster than imports.

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