Calm session amid holiday liquidity, European elections results in the spotlight

Summary:
- Thin trading amid UK and US holidays
- EPP/S&D alliance loses majority in the European Parliament
- EC considers fining Italy over budget
- Interesting moves across EM currencies

The preliminary results of the European elections ended on Sunday showed that the current big alliance of EPP/S&D would lose its majority in a new European Parliament, however, such an outcome had been expected. On the other hand, some warning signs might be noticed elsewhere with a clear win of Eurosceptic parties in Italy, France or the United Kingdom.

The start to the new week across European equity markets has been quite successful as investors are digesting the European elections results. This upbeat performance has come despite a victory of Eurosceptic parties in Italy or France. Meanwhile, in the United Kingdom pro-Brexit party secured the best result.

The Turkish lira is the best performing EM currency on the first day of a new trading week. Good condition of TRY can be explained with the latest action of the Central Bank of the Republic of Turkey (CBRT). CBRT decided to increase the reserve requirement ratio for the FX deposits by 200 bps. USDTRY moved lower following the announcement.

Today’s underperformance of ZAR can be ascribed to turmoil surrounding Eskom, the South African state-run utility company. CEO of Eskom decided to step down due to “health reasons” but it is hard not to link the case with extreme debt load of the company. Eskom has $30.5 billion of debt and is said to struggle to meet interest expenses as well as operational costs.

Elsewhere, reports surfaced saying that the European Commission may impose a fine on Italy that equals to 0.2% of GDP. The move is the aftermath of the EU-Italy skirmish over the Italian budget.

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