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European markets are trading lower this morning following gloomy sentiment in Asia and the US overnight. In line with the risk-off mood, Treasury yields are lower and the benchmark price of gold has risen sharply.
There remains a focus on geopolitics after Donald Trump imposed sanctions on Iran as he promised. The sanctions affect the freedoms of the country’s leaders overseas, including access to some financial instruments. Officials in Tehran have reacted by saying it ends any diplomatic dialogue between the two countries. Washington’s jostling with China, on the other hand, has cooled somewhat.
Trump has also taken aim at the US Federal Reserve, claiming the central bank “blew it” by not cutting interest rates last week and accusing it of incompetence. The President claimed that the stock market would have been higher and economic growth would be over 5% if monetary policy had been set as he wished.
Business confidence in Germany has fallen for the third month in a row according to the Institute for Economic Research, which added that the German economy was “headed for the doldrums”. The German economy grew by 0.4% in Q1 but the Bundesbank expects it to contract in Q2. A slowdown in the manufacturing sector has been restricting growth across the eurozone, while exports have been affected by global uncertainties.
Boris Johnson, the leading candidate to be the UK’s new Prime Minister, is facing increasing scrutiny for his Brexit promises, amongst other topics. Johnson is being asked to explain how he will reopen negotiations against the EU’s wishes and whether he can actually secure an implementation period in the case of a no-deal departure.
Finally, Italy’s Economy Minister has talked up the chances of a budget agreement with the EU. The country’s fiscal deficit target would be cut from 2.4% to 2.1%, a “more than prudent fiscal policy” for a “zero growth economy like Italy”.
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