Week Ahead (12 August)

w/c 12 August, Parliamentary leaders meet to discuss confidence vote as Italy gets on snap election footing

After weeks of internal turbulence, Matteo Salvini decided on Thursday to pull the plug on the coalition government presided over by Giuseppe Conte. He had been lobbied aggressively by elder statesmen of the Lega party to push for early elections in the hope of forming a right-wing alliance with Fratelli d’Italia, with Salvini atop as Prime Minister.

Parliamentary leaders will meet today to discuss potential timings for a confidence vote. President Mattarella will be faced with the choice of looking for alternatives to form a government or dissolving parliament and call a snap election. Former PD leader Matteo Renzi has called for an “institutional government” to oversee the 2020 budget and delay elections until 2020 while M5S spiritual leader Beppe Grillo has also endorsed such an approach on his blog.

Mattarella has full control over the timing of this process and may use this power to safeguard Italy’s public finances – a longstanding priority of his, as demonstrated by his refusal to accept the nomination of anti-euro professor Paolo Savona as economy minister. As a result, he may insist on having a technical government in place to oversee the passage of the 2020 budget before going to elections in November, or possibly even early next year.

Wednesday 14 August, UK inflation figures released

The UK consumer price index for May, published on 19 June, showed a decline to 2% - from 2.1% in April. This brought a halt to a succession of rising monthly CPI figures since the turn of the year. However, recent falls in GBP have raised long term inflation expectations to a six year high of 3.4% while short term expectations are 2.8%. High inflation will make it trickier for the Bank of England monetary policy committee, which meets on 19 September, to steer a dovish line in the face of no deal Brexit uncertainty.

Wednesday 14 August, Eurostat Q2 2019 GDP Data Flash Estimate

On 14 August, Eurostat will release its flash GDP estimate and employment data for the Eurozone and the EU for Q2 2019. The 31 July flash estimate found GDP was up by 0.2% both in the Eurozone and EU28 compared with the previous quarter

In Q1, the top underperformers included the three largest Eurozone economies – Italy, Germany and France. Compared to Q2 2018, GDP in Euro area was up by 1.1% in Euro area and 1.3% in EU 28. Given that the UK economy contracted in Q2 2019, next week’s figures are likely to be closely watched on either side of the Channel.

Wednesday, 14 August – Atlantia in good shape despite one-year anniversary of the fall of the Morandi bridge

Investors in Atlantia have experienced a bumpy ride since the collapse of the Morandi bridge in Genova on 14 August 2018. M5S had intended to take advantage of the emotion surrounding the one-year anniversary of the collapse of the Morandi bridge to exert maximum pressure on its coalition partners to begin the process of revoking Atlantia’s concession to run the toll roads on Italian motorways.

As we noted in our 29 May report, market optimism around Atlantia was likely to have been driven less by a belief that Di Maio will perform a u-turn on the concessions, and more by expectations of an election before the end of the year, followed by a Lega led government. Following the events of this past week, the first part of the above-mentioned scenario has transpired. Di Maio has publicly acknowledged that his attempts to revoke the Atlantia concession are now all but certain to fail.