UK Parliament due to be prorogued until 14th October
Italy close to PD-M5S new coalition government
Oil DoE data confirm draws but peak in US production
Politics remain in focus in Europe with major developments over the formation of a new coalition government in Italy and PM Johnson new bid to thwart MP's effort to halt a no-deal on October 31. The yield on the 10-year Italian government yield fell today to its lowest level ever below the 1% mark, as PD and M5S are closing in forming a new coalition government that will exclude Salvini and the Lega.
This reshuffle will avoid an early call to the ballot boxes in October, remove concerns over the 2020 EU budget submission and avoid the increase of the VAT in September. Moreover, the exclusion of the widely announced flat-tax (from Salvini) and Citizenship Income (from M5S) - as part of the previous government mandate - releases investors by worries on the costly implications of these measures on the Italian fiscal budget.
Therefore, BTP's are loving life and Brussels is very happy. However, don't forget that things could change quite rapidly in Italian politics. PD and M5S have radical different views and the chances of this government staying in place for another two years are relatively low.
Sooner or later market will have to face the possibility of early Italian elections in the context of Salvi Lega leading the polls by 36% after the overwhelming win at the latest EU Parliamentary election.
On the other side of the Channel Boris Johnson today proposed suspending the UK Parliament for at least a month to curtail efforts by MPs to prevent a no-deal Brexit on October 31.
The move happens, just as UK Commons is set to recommence usual business on 3rd September - after the summer break - and ahead of the 31st October Queen's speech which will set new plans for the Government.
The suspension or "prorogation" of Parliament will buy PM Johnson more time ahead of the EU summit on October 17 obstructing cross-party alliances in favour of a smooth Brexit deal and fulfil the Prime Minister intention to leave on 31 October "with - in case the EU summit bears resolution of backstop - or without a deal".
The quick fall in pound suggests an increase in the likelihood of a no-deal Brexit. However, the currency resilience proves that no-deal may still be averted. Don't forget that most likely Labour will file a no-confidence vote motion against the current Government which could eventually take to new elections or lead to the formation of a national unity government to avoid no-deal. However, PM Johnson as previously stated that he will not resign should the Parliament mistrusts the Government with a no-confidence vote.
If you missed the morning briefing from the desk click HERE