New Italian budget exposes EU crisis.

New Italian budget exposes EU crisis.

Will Italy be the next Britain?

1. Euro

In case in the nearest future we see euro in underwhelming performance we would surely know who to blame – Italians. Even though we always talk about euro being one of the most stable currencies in the market today, right now there is sadly no guarantee that the situation is going to remain the same as Italians have agreed on the budget the is going to see the deficit into 2019 and beyond.

Even though Brussels didn’t really like the plan for the new budget, it is clear that for the ruling party it was much more crucial to fulfill their pre-election promises and see that the poor of the county get obligatory minimal income each month even if that means falling GDP and budget deficit. And that is exactly the decision that was taken this night by Italian parliament.

European Union was also warned against trying to step in between Italian government and the new budget as there were already talks of Italy leaving Eurozone in the first place. And right now it would be logical for the EU to really consider such a step.

For Italy such a budget means not only budget deficit but also the fall of Italian bonds and indices as trust of the investors in the country is going to fade little by little. For other European countries that means that there is just another country to support, just like with Greece and Spain. And it is not like Italy was the strongest economy in the region that didn’t really need any support to begin with. So. Italy is going to eat up the money from the budget of Germany and France in order to feed its poor.

With scenario like that it is possible that sooner or later euro is going to give into Italian weakness. And even though united European currency has been building up stamina on the stability in the markets lately, who’s to say it is not going to lose it due to Italian shakes? Right now the budget is still only to kick in, but the beginning of 2019 is going to show us what this is really capable of.

The best-case-scenario in the long run for Italian government to find other ways to feed the poor of the country by creating new workplaces or getting into the agreements with other countries in order for them to give jobs to Italians. But sucking up money with no possibility of tax returning into the budget is just a bad idea for all of the sides.

The conflict also opens up a political crisis of the EU. All of the countries are to follow Brussels policies or face heavy criticism and loss of the investors. This whole budget is viewed as a challenge to EU. But why? We would say that all of the decision can be negotiated upon by the parliament of the EU. After all – that is what it’s there for. But deeming budgets of other countries unfit without even trying to negotiate on the matter uncovers a possible reason for the future crisis that can cover EU in the nearest future.

There is only so much stress euro can hold. Sooner or later the threshold is going to burst and we are going to see the ugly side of this whole idea.

Although on the bright side we can enjoy euro trading for now – after all for the time being it is the most stable in the world.

Victims of tariffs – outside and outside of the USA.

1. tariff compressor

It is clear that tariffs as harsh as imposed on China by Trump are bound to have their victims really fast. But it wasn’t clear at the first sight that these victims are going to be not only outside the US, but inside economically-aggressive country. So, what the first victims of Trump’s tariffs policies?

Well, of course, the first and the most obvious victim is China. Chinese conglomerates and corporations, to be precise. Pace of their profits has slowed down to the lowest level in 5 months. The process has been ongoing for four months in a row and for us it is safe to say that all of this time Chinese were trying to find some kind of an agreement with Trump, but failed every time to do so. Of course, there might be a lot of reasons for such a behavior of the growth tempo, but right now it is hard to see something other than trade tensions.

The companies with international beneficiaries have been suffering the most. And right now it is of course natural that China is going to turn to the other countries in order to find a partner who would help Beijing withstand the pressure from the tariffs. Since Trump imposed the first package, it pushed China into collaboration with Russia that became even closer. Collaboration of two such big countries is hardly something United States need, but it is what they are going to get.

The second victim of Trump’s policies are American automakers. Of course – imposing tariffs for imported into the United States steel and aluminum was bound to anger the automakers. And it was bound to lead them to inevitable losses and drops in numbers. Only Ford, one of the biggest automakers in the country and the world lost $1 billion.

And we would take a guess that Ford is not the only company in the red zone here. A lot of other American automakers are losing right now – all because of the metal tariffs imposed by Trump.

And the third, the biggest amount of damage is being experienced by the greenback itself. Dollar trading has not been easy lately all due to the tariff see-saw. Uncertainty of traders in the currency paid off with enormous losses with greenback losing up to 1 percent of its value against the basket of six major peers.

This damage return was something no one could see coming. Especially given that American products became subjects to tariffs themselves. A lot of countries out them under tariffs as an answer to aggressing international policies and refusal of Trump to listen to reason.

Why the analysis? Well, these losses can tell us now what assets to avoid in the future. American automakers, Chinese conglomerates and dollar itself – these are the assets which are going to become really unstable and untradeable in the nearest future. watch out for them.