13-NOV-2018, TUESDAY

In today’s other economic highlights, in today’s European session we get Germany’s final release of its HICP rate for October and the ZEW economic sentiment indicator for November, while from the UK we get September’s employment data. As for speakers, ECB’s Peter Praet, Sabine Lautenschlager and Luis De Guindos as well as Fed’s Lael Brainard and Philadelphia Fed President Patrick Harker, speak.

The EU Commission could be escalating its confrontation with Italy regarding Italy’s budget deficit. Italy’s deadline to deliver a revised budget, after the first draft was rejected by the commission, ends today. For the time being, there are no signs that the Italian government has any intentions to revise its current budget for 2019. EU officials state that, should Italy insist on maintaining the current level of deficit, it would be very difficult for the commission not to take any action, as it would undermine the credibility of the fiscal rules. It should be noted that there is still a long way for ultimate penalties to be imposed on Italy, however the first steps could be taken now. The implications of a confrontation between Rome and Brussels, could spill over to other issues and create a wider political instability in the Eurozone and the EU in general. As Europe braces for the escalation of the confrontation, the common currency may experience high volatility.

The pound had a roller-coaster session yesterday against the USD, as Brexit negotiations defined the investor’s sentiment. Cable initially rose as media reports cited EU’s chief negotiator Michel Barnier as stating that the main elements of a deal were ready. However subsequently UK PM’s spokesman denied such a development, sending the pair back into the lows. Analysts point out that despite EU officials being more optimistic about a possible deal, the market has become more sceptical. Theresa May’s Brexit strategy has come under attack by all sides in the UK, including hard Brexiteers within her own party as well as the DUP, which provides for majority in parliament. The pound is expected to continue to be volatile as the Brexit negotiations are ongoing and a number of financial releases affecting it are due out.