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Global Trade & Italy Debt Load. Europe to Open Higher

Another record-setting day on Wall Street and reduced trade tensions have set the stage for equities to have a positive start in Europe. Indications that Canada will join the US and Mexico for a new NAFTA deal this week has fueled demand for US blue-chip shares. The S&P 500 reached 2900 for the first time on Tuesday.

No records are expected to be broken in European share markets just yet. Some of the optimism about the deal struck between the US and Mexico has turned to concerns over Italian debt levels. Mexico reaching an amicable solution with the US, especially in the automotive industry, increases the likelihood Europe will end with a similar result. The positive industry news bodes well for recently pressured auto shares including Volkswagen and Citroen Peugeot.

Concerns about European bank exposure in Italy is a worry, hot off the heels of similar concerns over Turkey. The comments from the deputy prime minister about Italy breaching the 3% cap on public deficits is confirmation that Italy’s new populist government is even less fiscally responsible than its predecessors. Italy’s political upset combined with its high debt load is a significant risk factor for European equities through the second half of 2018.

The focus for forex markets will be the second estimate for US GDP. Some estimates have put US growth as high as 4.6%. Higher than expected growth data could see some demand return for the greenback after a stretch of weakness. Any news over Canada’s participation in a new NAFTA deal should underpin the loonie with USDCAD down at its lowest levels since June.

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