• Iran: rhetoric from the U.S. and Iranian sides increased, with threats and counter-threats. The attack on a Revolutionary Guards parade (killing 25, including civilians) increases instability and could yet bolster hardliners in the regime. Israel claimed that Iran was flouting the nuclear deal by hiding prescribed materials in a series of warehouses. India appears steadfast in its determination to keep trading with Iran. • Payment Process: the EU appears ready to rollout a mechanism to facilitate ongoing trade with Iran – most likely a bartering structure. Russia and China also want to join such a process – angering the U.S. • Italy: markets were hit by the nature of the budget deal reached between the Northern League and 5* parties. While the 2.4% projected deficit is within the 3% maximum allowed under Euro budget rules this only tells part of the story. The fiscal impact of the budget is likely to be much worse than indicated, as it interacts with an underfunded state pension system. We continue to believe a fresh vote is inevitable. • NAFTA: Trump refused a one-on-one with Trudeau and threatened Canada with car tariffs. Speculation still suggests a three-way trade deal is close – due to a delay in publishing the Mexican-U.S. agreement.
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