The Italian problem is here to stay. Having swallowed whole the Italian government’s earlier assurances of fiscal probity, financial markets reacted with surprise to the deficit plans of Italy’s new budget. Rome may not be able to fool financial markets again but it will probably keep trying.
The macro perspective
A booming economy challenges a cautious SNB. The Swiss economy is running on all cylinders. Swiss companies are particularly benefiting from the robust global economy. But despite the shrinking cost-benefit rewards of negative interest rates, the Swiss National Bank remains cautious, avoiding any hint of monetary policy normalization.
FX market talk
Looking beyond the indices. The current weakness of emerging market currencies against the US dollar has reignited the perennial debate about the underlying strength of these economies. After all, weak currencies are associated with net capital outflows. We argue that while the weakness of emerging market currencies does signal problems in certain sectors and in certain economies, in most cases these appear to be more cyclical in nature.