Euro currency focus on two confidence votes: Italy and Boris Johnson

Euro currency focus on two confidence votes: Italy and Boris Johnson
Interior Minister Matteo Salvini points to senators as Italian Premier Giuseppe Conte addresses the Senate. Ettore Ferrari/ANSA via AP

The euro slipped on the resignation of the Italian premier amid a confidence vote, as currency markets focussed on another confidence vote -- in UK leader Boris Johnson early next month.

The resignation of Italy's Prime Minister Giuseppe Conte and a verbal broadside on his coalition partner Matteo Salvini, which may lead to an autumn election, led to the euro edging lower against sterling but gaining against the dollar. It traded at $1.109 and 91.23 pence.

But the focus remains on the British political turmoil over Brexit as more evidence emerges that uncertainty over a crash-out threat at Halloween is already weighing on many British industries, including, farmers rushing to sell their harvests before October and on grocery prices at supermarkets.

Reflecting continued Brexit uncertainty, shares in the Irish banks fell again. AIB slid 5.5%, meaning the lender's shares have lost almost 10% of their value since Mr Johnson took over as prime minister in recent weeks, and have dropped 51% in the past year.

Bank of Ireland fell 1.4% in the session to post a 54% loss in the year, and Permanent TSB slipped by 0.4% for a loss of 55%. Shares in Dalata Hotel Group -- which are also vulnerable to sterling -- fell 3.3%

"It seems that the European political picture is set for a volatile few weeks, with [Tuesday's] vote of no confidence in Italy expected to be followed up by a similar move in the UK next month," said Joshua Mahony at online broker IG.

"Brexit sentiment seems to be shifting on a daily basis, with markets caught between the optimism of a cross-party deal to avert a no-deal Brexit, and the pessimism of Boris Johnson’s unwavering stance...Instead we are likely to see volatility for the pound with the outlook dictated by whether or not Johnson survives a vote of no confidence next month," Mr Mahony said.

The economic damage sparked by fears over a crash-out Brexit has led British farmers to rush to sell their big harvests of wheat and barley before October to avoid the potential market chaos, Bloomberg reported.

The UK may reap the most feed barley in four years, and wheat prospects are also improving, according to its Agriculture and Horticulture Development Board. Coupled with the risk that sales to the EU may plummet if the UK departs without a deal, that’s spurring a surge in early-season grain sales.

About 63,000 tons of barley were sold from British farmers for spot delivery in the week ended August 8, the data show. That’s the largest in records to 2000, and feed wheat sales reached a three-year high.

In British supermarkets, grocery inflation now stands at 0.9% in the 12-week period to the middle of August, boosted by price rises in crisps, canned fish and frozen fish, with overall sales flat, according to market researcher Kantar.

On Italy, Andrew Kenningham, chief Europe economist, at Capital Economics in London, said that markets will likely get no reprieve from Italian politics.

"Hopes that Italy’s political crisis will pave the way for a more market-friendly government are likely to be disappointed," Mr Kenningham said.

"Along with the weakness of the European economy this could weigh on business confidence. We see no reason to change our view that Italy’s economy will contract this year and next," he said.

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