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Italian government debt falls on reports of fiscal prudence

Italy sticks to the Eurozone’s rules as South Africa shows warning signs of recession.

Yields on Italian government bonds fell after reports that the country’s upcoming budget will abide by the Eurozone’s fiscal rules. Italian newspaper La Stampa reported yesterday, 4 September that the League, which is in a coalition government with left-wing populist party Five Star, would stick to a deficit of no more than 2 per cent of GDP by limiting spending increases.

The UK is showing warning signs of a potential economic slow-down after the construction Purchasing Managers’ Index (PMI) dropped to 52.9 in August – below economists’ forecasts of 54.9. Despite a modest overall rise in construction activity last month, growth in output eased to a three-month low, according to IHS Markit.

Amid an ongoing Brexit saga, Bank of England Governor Mark Carney said yesterday he would remain in his role until 2020 to ensure a smooth Brexit process and transition to a new governor.

Meanwhile, emerging markets are showing further signs of stress. South Africa’s Rand plummeted against the US Dollar yesterday and is now down by more than 5 per cent. The currency’s fall accelerated after the economy dipped into technical recession in the second quarter of the year – for the first time since 2009.

Finally, my focus will be on Neel Kashkari, John C. Williams and Raphael Bostic, the Federal Reserve’s (Fed) members who are scheduled to speak later today. Economists will await clues to the Fed’s monetary policy path in the short-to-medium term. Any pivot to a hawkish rhetoric will drive the Dollar higher.

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