Euro about to face new challenges

Posted 13 March, 2019

The potential problems of the euro or even a collapse of the euro-area financial system have been urgent topics since the PIGS crisis and Greece debt problems. The famous populist Marine Le Pen planned to shelve the euro and return French franc, declaring a default on sovereign debt. It seems that the euro can face new problems.

According to market reports, a new threat to the currency is coming from Italy. Giuseppe Conti’s government expects that after the March visit of China’s President Xi Jinping, they will be able to reach an agreement on the lease and modernization of the Adriatic ports under the One Belt, One Road initiative. This project should bring to the Italian economy up to $1.5 trillion in the next ten years.

These plans, however, are strongly opposed by the USA. Washington intends to launch a colour revolution in Rome against the Conti’s government. Berlin and Amsterdam are likely to support the USA in these intentions. Germany and the Netherlands are currently the main logistics centres for Chinese exports to the EU. In the West, politics has long been an extension of the economy, and talks about freedom and democracy are only trying to give more weight to the words and actions of politicians in the European countries.

Still, Italy will hardly leave the euro-area and more likely to adopt a more flexible approach as for the US government. Nevertheless, there is a high probability that euro will be under pressure in 2019, and Italian companies’ stocks will be highly volatile. In the worst case scenario, there will be a banking crisis, but the probability that the story with Lehman Brothers will reappear is low. In extreme cases, the ECB will intervene.

Previous forecast

15 March, 2019 17:10

← Pound sterling remains highly volatile after hitting last-year peaks

The pound sterling has been moving up and down lately, while now it maintains heavy volatility ahead of the UK's departure from the EU slated for March 29. Investors are waiting for the voting on the delay of EU leaving, which can entail certain risks for the pound. Strategic investors have faced challenges as this situation does not let them plan further actions in the market. Another important issue is to understand whether the UK manage to retain the status of a safe place for business after the political turmoil. Further pound movements are unclear in this situation, though one of the scenarios is that investors can start selling pound on the market reports while waiting for the voting results, following the EU decision on the delay.

Pound sterling remains highly volatile after hitting last-year peaks

Next forecast

12 March, 2019 16:43

Oil prices maintain dynamic balance despite heavy pressure →

The oil market has seen substantial price strengthening lately. Oil quotes have gained almost 4% per bbl since last Friday. With this rise, the prices are coming closer to the upper end of the consolidation space. According to the market, the upturn was related to the media reports that Saudi Arabia will ship less oil than clients' ordered in April, with the output in the Kingdom to be well below 10 million bbl per day. Active discussion of the possible consequences of the power cutoff in Venezuela has become another driver of the concerns in the oil market recently...Despite strong reasons for both upward and downward movements, oil prices maintain positions near $66/bbl in terms of Brent oil for about a month already.

Oil prices maintain dynamic balance despite heavy pressure
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