EUR and CHF vulnerabilities could trigger retests of 18- month extremes - Westpac

Despite initial EUR rebounds after Italy’s referendum rejection, a failure to gain an effective technocrat government could trigger snap elections, would unsettle fragile confidence and increase financial sector pressures expects Tim Riddell, Research Analyst at Westpac.

Key Quotes

“Addressing the failure of Monte dei Paschi is merely dealing with symptoms of Italy’s NPL problems and these are merely a part of broader issues across the Eurozone. France is heavily exposed to Italy’s banking sector and Target 2 data (ECB’s cross border settlement system) show that Germany is effectively providing support to Italy.”

“Recent survey data have been sound, but misses in core country November retail sector PMIs could presage a pullback for broader surveys in December.”

“Another deflationary Swiss CPI release underlined the need for SNB to continue NIRP at their 15th December meeting.”

“If USD strength resumes, EUR and CHF vulnerabilities could trigger retests of 18- month extremes.”