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Daily Briefing: Untying the knot of Italy's hung parliament

LONDON (Reuters) - Italian President Sergio Mattarella kicks off consultations today to try to find a government, a month after elections delivered a hung parliament to the country.

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His task was made all the harder last night after the anti-establishment 5-Star Movement ruled out joining a coalition with Silvio Berlusconi's Forza Italia, the party it lambasted throughout the campaign as corrupt. Although 5-Star says it would talk to the anti-immigrant League, that party says it is sticking with its right-wing partner Forza Italia.

To make matters more complicated, 5-Star is ready to talk about alliances with the outgoing centre-left PD party - though not to its former leader Matteo Renzi. If no solution is found after this initial round of contacts, Mattarella is expected to hold a second round later in April.

The first of France's rolling rail strikes enters its second day today, after having caused a sizeable degree of disruption on Tuesday, notably around the Paris area. There are some signs of discontent emerging in other sectors - energy, Air France and refuse collection have all see industrial action - but not yet coalescing into a generalised protest movement. The government again urged the unions to come back to the table and negotiate on Tuesday.

A first estimate of euro zone inflation for March due at 0900 GMT is seen putting price gains at 1.4 percent compared with 1.1 percent the month before. That might include one-offs but would still be used by ECB hawks to bolster arguments that inflation is close to being on a sustained path up towards the target level of just under 2 percent.

While they broadly back an expectation that the ECB will halt its stimulus by the end of this year and follow up with a first rate hike before mid-2019, they argue the main risk now is not tightening rapidly enough.


World markets have steadied to some degree as Wall St's embattled tech sector rallied overnight but trade war fears kept Asia bourses on the back foot early on Wednesday as China vowed further retaliation to U.S. tariffs of some 25 percent on about $50 billion of Chinese imports.

The S&P500 reclaimed almost a half of Monday’s steep losses last night and, crucially for nervy momentum traders, it also regained a footing above a 200-day moving average that’s currently obsessing Wall St. The tech-heavy Nasdaq bounced more than 1 percent.

A successful listing for music-streaming firm Spotify was more encouraging news for the under-fire internet sector, while the largest American business lobby group came to the defence of Amazon after a multi-day Twitter attack by U.S. President Trump. Reports that the White House said Trump's tweets were not a prelude to some regulatory push also helped. Electric carmaker Tesla’s share price also rose 6 percent on Tuesday after it denied it needed to raise fresh capital.

But the latest tit-for-tat trade moves between Washington and Beijing have unnerved Asia markets again - and U.S. stock futures too. While Shanghai and Tokyo stocks ended little changed, benchmark indices in HK and Seoul lost more than 1 percent and S&P futures were down about half a percent first thing Wednesday.

Major currencies were mostly flat, with U.S. Treasury yields a touch lower than the New York close last night. European stock futures pointed to a slightly lower open, with European bond markets closely watching the release of flash March inflation numbers for the euro zone later in the session after another set of underwhelming manufacturing surveys for the region on Tuesday.

While headline inflation is expected to pick up to 1.4 percent during the month, data last week showed inflation in Germany and Spain rose less-than-expected in March and so there’s some trepidation euro zone-wide number may also disappoint. One eye is also on Italian politics as the messy process of forming a government after last month’s inconclusive elections gets underway with formal government consultations.

-- A look at the day ahead from European Economics and Politics Editor Mark John and EMEA markets editor Mike Dolan. The views expressed are their own. --