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An apparent impasse was swept aside yesterday, when Italy’s Economy Minister Giovanni Tria confirmed that the Italian government plans to cut the budget deficit in 2020 and 2021 after letting it increase in 2019. The compromise has likely come about through pressure from the EU, who were calling for a change to plans which aimed for a 2.4% of GDP deficit per year from 2019 to 2021. The markets reacted positively to the news, but it does beg the question of how the coalition will deliver on its pledges.

While this was going on, there were several pieces of economic data coming through from Germany and the eurozone. Composite and services PMI from Germany came in at 55 and 55.9 respectively, against expectations of 55.3 and 56.5, while in the eurozone, the figures were 54.1 and 54.7, against forecasts of 54.2 and 54.7. So, all in all, the predictions were very close to what actually proved to be the case.

However, retail sales were slightly different, as the eurozone’s August figures showed a month-on-month decline of 0.2% when a 0.2% increase had been expected. On an annual basis, the figures were more encouraging, as sales grew by 1.8% when economists had predicted 1.7%. The euro didn’t move all that much throughout yesterday, but at least its recent decline against the dollar was arrested – for now. It remains to be seen in which direction the next big move will go, but the Italian budget news is certainly good news for Italy and the eurozone.

The only release of note today is construction PMI from Germany in September. Last time around, the reading was 51.5 which indicates growth, albeit not quite as good as it might be. It will be interesting to see how last month’s figure differs from that.

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