In Europe first, Italy, Germany and the ECB are making the headlines.
On the Rome side, Matteo Salvini rebelled and blew up the coalition in power for more than a year, causing the resignation of the head of government Giuseppe Conte. Popular in polls thanks to populist arguments, the transalpine vice-president hopes to hold new elections to take sole control of the Chigi Palace. Former Council President Matteo Renzi calls on all the country's political forces to unite in a republican front to "save" the country from an "extremist" drift.
In Germany, press reports indicate that the German government is ready to return to a deficit budget in anticipation of a more pronounced slowdown. The economy of the Monetary Union engine contracted by 0.1% in the second quarter and Berlin, on the verge of recession, would consider releasing a 50 billion package to support growth.
Frankfurt could, however, react earlier. In an interview with the Wall Street Journal, ECB Council member Olli Rhen said that it is better to "exceed" market expectations than to be "below". The Governor of the Bank of Finland considers it "important" to develop "an important and effective package of measures by September".
On the other side of the Channel, the United Kingdom recorded the first contraction in GDP since the end of 2012 (-0.2% in Q2), while economists were expecting zero growth. On the Brexit side, if Boris Johnson still claims to want to leave the EU, whatever the conditions, as of October 31, confidential government documents about the devastating consequences of a no deal leaked in the Sunday Times. These revelations are likely to further weaken the Prime Minister two weeks before the start of the parliamentary term.
In the United States, the 10-year rate yield briefly fell below that of its 2-year counterpart for the first time since 2007, giving yet another opportunity for a host of apprentice prophets to announce the end of the world. Let us remember that we had already been given the very bad omen of the inversion of the yield curve last spring against the backdrop of the singular strength of the American 3-month rate, yet our planet is still turning.
If we rely solely on the facts, the world's leading economy saw its consumer prices rise by +0.3% in July, compared to +0.1% in June. Over one year, inflation rose by +1.8% compared to only +1.6% the previous month. Excluding volatile elements (energy and food), the score even reaches +2.2% over one year. The crash could still wait a little longer.
On the trade war front now, the postponement to December 15 of the new tariffs promised to Beijing by Washington seems to have failed to calm pessimism for long. In view of Chinese industrial production, which is now at its lowest level in 17 years, the worm is already in the fruit.
While several developing economies are even preparing for more tremors by lowering their key rates together, another sign of emerging market excitement is coming from Argentina. The clear setback of the outgoing liberal president at the presidential primaries on October 27 caused the Argentine Peso to plunge by more than 35% in a single day against the Dollar, forcing candidates to call for calm.
This week, traders may be able to adjust their monetary policy expectations. First by analyzing the minutes of the FED and then the ECB, but also and above all by following the traditional annual meeting of central bankers in Jackson Hole. Jerome Powell's speech on Friday is particularly awaited. On the macro side, the latest European PMI indicators will be unveiled on Thursday morning.
Graphically, the Euro is evolving close to its recent lows and each technical rebound offers us a sales opportunity. 1.1156, 1.1271 and 1.1399 are potential resistances while 1.1071 and USD 1.10 are the objectives closest to current prices.
Similarly, the Pound is struggling to resist and trade is organized just above USD 1.20, a fragile support that could, in the event of a break, pave the way to the lowest levels in the history of the British currency against a basket of currencies. Despite some optimism about Westminster's possible ousting of Boris Johnson, we are off parity in an unpredictable and unprecedented context.
For its part, the Yen is benefiting greatly from the current climate of risk aversion. Breathing temporarily in contact with its 20-day moving average, the USD/JPY pair does, however, offer us an opportunity to sell on a rebound to aim for a return to 105.40 or even JPY 103.10.
Finally, in Argentina, the Peso is penalized by the electoral news which forces the outgoing president to readjust his program. The USD/ARS pair relied on 45.166 to soar to 62.200 ARS before entering a consolidation phase. A clearer correction would not be extraordinary, especially in the event of a new bullish surge, but the volatility of the pair suggests caution.