Italian politics in focus

Italian politics, and in particular some of the prospective policies of the country’s potential  new government of the anti-establishment Five Star and right-wing League, was very much in focus for markets yesterday. Italian 10-year bond yields rose by around 16bps to 2.10%,  their highest level since October last year, with spreads over equivalent German bond yields widening out by 20bps to around 150bps

The euro came under pressure as attention centred on Italy. The single currency fell to an intra-day low of about $1.1760 against the dollar before recovering some ground, though at $1.18 this morning it remains below where it was this time yesterday. Moreover, with 10-year yields in the US breaking to new highs north of 3.10%, this may exert additional pressure on the euro-dollar rate

Sterling is a touch firmer against the euro, trading just below 87.5p, and largely unchanged against the dollar, at just over $1.35. Meanwhile, with a little over a month to the EU summit, there seems to be growing concern about the lack of progress in the Brexit talks

The manufacturing sector in the US began the second quarter on a solid footing, with output in April rising by 0.5% from March

Data due today include construction output in the Euro area and jobless claims in the US