Investor fears over Italy’s political turmoil eased on Wednesday, leading to a sharp recovery in Italian assets, the Euro and global equities. Investor confidence that Italy will manage to overcome the current political deadlock was reflected in a bonds auction, where the government managed to sell five and ten-year debt with a bid-to-cover ratio of 1.53 and 1.48, respectively. Confidence returned after Italy’s Prime Minister-designate, Carlo Cottarelli, said yesterday that “new possibilities for the birth of a political government have emerged”, suggesting that a snap election may be avoided.

The Euro rallied more than 1.4% against the Dollar from a 10-month low of 1.1506, its strongest daily performance since January. Also helping the Euro was the German jobs data report, which showed that unemployment fell to a new record low of 5.2% in May.

Given that political tensions in Italy have eased to some extent the focus will return to fundamentals, and today’s preliminary Eurozone May CPI data release will be of great importance for the ECB’s next meeting. A better than expected reading will support proposals for ending quantitative easing and beginning the normalization process.

Relieved about Italy? Let’s get the trade war back on

U.S. Commerce Secretary, Wilbur Ross, seems to have rejected Europe’s requests for a permanent exemption from metal tariffs, suggesting that tariffs on imports of European steel and aluminum will commence on June 1. In the meantime, President Trump’s economic advisor Peter Navarro hit out at Steve Mnuchin for declaring the China trade war as being on hold. It will be very interesting to see how talks over the weekend in Beijing evolve, but investors should get ready to re-price the trade risk.

Oil falls slightly after strong recovery

Brent prices fell slightly in the Asian trading session after a 2.8% jump on Wednesday. June 22 remains the most significant day for oil investors as a decision on the output from OPEC and non-OPEC producers will be taken. Given that there are still more than three weeks until the summit, any speech, headline or a comment from an official member will have a direct impact on prices. So, expect a very volatile three weeks ahead.

Oil traders will also be monitoring EIA inventories data out of the U.S. after API showed a 1 million rise in stockpiles last week.