1922 Committee meeting fears drag pound lower lifting FTSE

A weaker pound and 23% increase in profits at Barclays lifted the FTSE back over 7000, until a sharply weaker open on Wall Street saw the UK index give up some of those gains. Bucking the trend in Europe, the FTSE has manged to cling onto its gains to finish in the black.

The pound remained firmly below $1.30 in cautious trading ahead of Theresa May’s meeting with the backbenchers so called 1922 Committee. Theresa May’s hopes to win her party rebels over on her plans for Brexit. The pound is fully aware of the size of the task in hand and doubts whether Theresa May can pull this one off. The direction of Brexit negotiations will depend on the outcome of this meeting, keeping many pound traders on the side lines.

Wall Street falls (again)
Despite clawing back heavy losses on turnaround Tuesday, Wall Street has once again opened on the back foot. With a long list of risk factors, including Italy’s growing tensions with Brussels, Saudi Arabia’s increased isolation over Jamal Khashoggi’s killing, global growth worries and some earnings disappointments investors are struggling to find reasons to buy in.

What does the next chapter hold for Italy vs Brussels?
The euro fell to fresh two-month lows versus the dollar. Persistent fears over Italy’s souring relationship with Brussels, weaker than forecast manufacturing PMI data from Germany and France and a stronger dollar mean that demand for the common currency was low. Italy’s Salvini remains defiant on the budget as the clash with Brussels continues. These next three weeks the European Commission and Italy will negotiate; Brussels aiming for a revised version of the Budget which continues to work towards reducing Italy’s hefty budget deficit.
Italy is unlikely to be talked around easily and so far, Rome is digging its heels in. Should no agreement be reached over the coming three weeks then Brussels could look at punitive measures and an Expenditure Deficit Procedure (EDP). Three weeks for the markets is a long time to withstand such uncertainty. Investors are cautious about investing in Italian debt, sending Italian treasury yields higher once again.

The FTSEMIB traded over 1% lower across the session, the hardest hit European index today. Unsurprisingly, Italian banks which are heavily exposed to Italian bonds, were trading sharply lower. Unicredit was down by over 3% which puts it inline for a 15% decline across the month.

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