Standard & Poors, the US ratings agency, said that they did not foresee any change to Italy’s sovereign rating following the recapitalisation of most of the major banks with a € 20 billion financing package. The outlook remains “stable”, although this really means unchanged from very low rating, BBB-. Standard & Poors record for accurately foreseeing difficulties and credit events is questionable. For them to ignore the fact that so many of the country’s major banks are at such critically low levels of liquidity and not register that as a situation which should at the very least a prompt towards “negative watch” is beyond logic. These issues will come home to roost in the weeks and months ahead, creating more problems for Italy and possibly knock-on effects for the rest of Europe.
Sterling
The previous Governor of the Bank of England, Mervyn King, said that while a total detachment from EU would present challenges, it would also enable UK to press ahead with other trade deals. Mervyn King gave an interview on UK Radio last Monday. His opinion was that the UK should make a complete break from EU, not seeking ongoing or transitional relationship with the European trading zone. He said this would not be a bed of roses, but felt the UK should be more positive and optimistic about the future, and that doing so would enable the UK to start negotiating trade agreements with new partners that we would be prevented from doing so under EU regulations.
US dollar
Consumer confidence for the first month since Donald Trump was elected President smashed forecasts to show belief in his policies working. Previously 108.9, forecast 109.4 they came in at 113.7 which was a 15 year high. The US electorate continue to back their decision in November by responding positively to the Consumer confidence survey. Mr Trump himself tweeted that he was already having a substantial impact on the economy, which is hard to argue with on the back of this release, but he has still yet to deliver on many of those policies and their effects. Nonetheless, through the early month of 2017 it looks as though the US economy will appear to outperform most if not all others, leading to further USD strength across the board, and especially against GBP as the UK knuckle down for a hard Brexit.