Euro Shivers, Dax and S&P 500 Fall on IMF Outlook, Italy Growth

TALKING POINTS – EURUSD, S&P500, DAX, ITALY GROWTH, BUDGET, IMF WORLD OUTLOOK

• SPX and DAX fell on IMF and Italian econ growth outlooks
• Italy budget deficit to widen – How will Brussels respond?
• EU-US trade war to weigh on battered Eurozone economy

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EURUSD, along with S&P500 and DAX futures began to fall following the IMF’s publication on the outlook for global growth being at its lowest point since the financial crisis. Risk aversion was further compounded by news that the Italian economy may only expand 0.1 percent (down from the 1.0 estimate) and the budget deficit forecast was widened to 2.5%, substantially larger than what Rome and Brussels had agreed upon.

DAX, S&P500 Futures, EURUSD – 15-Minute Chart

As forecasted in late 2018 and at the start of the year, the respite offered to markets by the fragile agreement between Rome and Brussels was an ethereal pause. The recessionary pressure and revised GDP numbers next to a bigger-than expected budget deficit could just be enough to push Brussels to reopen the budget case. This comes as the US pivots away from a trade conflict with China and appears to be now entering a new trade spat with the EU, another weight the economy will have to lift.

Looking ahead – specifically tomorrow – there are a number of major event risks. The ECB will be releasing its rate hike decision followed by a press conference with Mario Draghi. The commentary will likely echo a similar tone struck at the last meeting, only this time the urgency may be greater, and the outlook less certain.

Another European-based risk is the EU’s verdict on whether to grant the UK an extension during the emergency summit in Brussels. Traders will also be eyeing the release of the FOMC meeting minutes, another major indicator to watch.

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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter