Italian jitters calmer with Spain and NFP in focus

As jitters over Italy’s political situation calmed down yesterday, risk-sensitive assets rallied across the board. Haven bonds and yen fell, while stocks rose sharply amid hopes that fresh elections may be avoided. The major FX pairs also created bullish-looking candles on their daily charts, as the dollar eased back. Unfortunately though, the bullish euphoria has faded and there hasn’t been much follow-through in the first half of Thursday’s session. Understandably, some market participants want to see actual progress in the Italian political stalemate. Meanwhile, Spain is the next European country to test the region’s stability as Prime Minister, Mariano Rajoy, faces a confidence vote by Friday. Then there’s that nagging trade dispute between the world’s largest economies – the US and China – while NAFTA talks have also stalled. On top of all this, speculators have to consider the impact of Friday’s payrolls data on indices and the dollar and what this may mean for the major FX pairs and buck-denominated gold and silver. But despite all these concerns, the second half of Thursday’s session could be more eventful once US traders join the game.

Data recap: Eurozone inflation jumps

Meanwhile there’s been plenty of macro pointers released earlier today with data from the Eurozone being surprisingly strong, although they failed to make much of an immediate impact. Eurozone CPI beat expectations at 1.9% y/y in May versus 1.6% expected and up sharply from 1.2% previously, with core CPI also stronger at 1.1%. Inflation was boosted by a jump in energy prices which pushed French inflation to a six-year high. Inflation in Germany, Spain and Italy were all stronger than anticipated as well. Energy prices were up 6.1% on year; the price of food, alcohol and tobacco also posted a rise of 2.6%. Meanwhile the Swiss economy expanded by 0.6% in Q1 and retail sales were up 2.2% year-over-year versus a fall of 1.4% expected. Overnight, China's manufacturing (51.9) and non-manufacturing (54.9) PMIs both came in ahead of expectations, while in Japan industrial production was weaker at +0.3% m/m vs. 1.5% expected though housing starts topped at +0.3% y/y vs. -8.8% expected. And from Australia, Private Capital Expenditure printed +0.4% q/q vs. +0.8% expected while the key data from New Zealand was ANZ Business Confidence which deteriorated further to -27.2 from -23.4.