Italy Now Infected by the Emerging Market Debt Crisis

Excerpt from Louis Navellier's Marketmail - 06/05/2018

Subscribe to Marketmail

Screen Shot 2018-06-05 at 2.25.07 PM.png

The emerging market crisis spread to Brazil and infected Italy this week. Even though Italy is not an emerging market, the country holds a disproportionate amount of emerging market debt. Furthermore, Italian President Sergio Mattarella blocked two anti-establishment parties, the 5 Star Movement & League parties, from taking power, effectively denying Italian voters their chosen political leaders from the March 4 election. These new political parties are not friendly to the European Union (EU), reflecting the fact that Italian voters are increasingly hostile to the EU leadership. However, on Thursday, the 5 Star Movement & League struck a deal to form a new government, raising hopes of forming a coalition. 

In the meantime, Carlo Cottarelli has been named Italy's new Prime Minister to lead a "caretaker" government if a coalition cannot be formed. Spain's leadership is also under siege, since Prime Minister Mariano Rajoy faces a no-confidence vote in Parliament. Between the chaos in Italy and Spain, the euro hit a six-month low against the U.S. dollar, which is causing the 10-year U.S. Treasury rates to retreat.

In This Issue of Marketmail

Our main theme this week is that the U.S. has become a safe haven in a world filled with turmoil. In addition to our dominant GDP, Bryan Perry looks at some numbers under the radar, including hot new earnings and GDP estimates, which imply a potential summer rally. If it's June, there must be a European crisis, says Gary Alexander, but the U.S. recovery keeps sailing along, now the second longest in history. Ivan Martchev covers ways to hedge against the dollar short squeeze, a byproduct of the emerging markets crisis, while Jason Bodner looks for clues of future long-term leadership in the early warnings system of the sector scoreboard. I wrap up with the implications of a strong dollar and strong economy.