Italian inflation is slowing down and offering Piazza Affari a sign of détente, but not yet a definitive turning point. According to preliminary Istat estimates, in June the national consumer price index for the entire community remains stable on a monthly basis and rises by 3% on an annual basis, down compared to the 3.2% recorded in May.
The most relevant data for the markets is not only the slowdown of the general index, but the dynamics of the less volatile components. Core inflation, net of energy and fresh food, fell to 1.6%, while the so-called shopping cart, which includes food, household and personal care goods, slowed to 1.6%.
These are numbers that indicate less pressure on consumption and real incomes of families, two variables also carefully observed by investors. Less intense inflation can, in fact, improve the situation for domestic demand, but the market remains cautious because the cooling is not uniform.
Energy still in tension, because the framework remains fragile
The critical point remains energy. The slowdown in prices does not erase the contribution of energy, which continues to represent a risk variable for businesses, families and monetary policy. For this reason, the Italian data should be read as a positive signal, but not sufficient to close the inflation dossier.
For Piazza Affari the topic is concrete. If energy costs remain high, pressure increases on the margins of companies most exposed to production, logistics and industrial consumption. The risk is that the decline in underlying inflation will be counterbalanced by new cost tensions, making the work of the European Central Bank more complex.
It is precisely this combination that explains the markets’ caution. Inflation declines, but not enough to allow for a fully expansionary reading. Investors therefore look not only at the final data, but at its composition: services, energy, food and producer prices become decisive indicators to understand whether the cooling can consolidate in the second half of the year.
ECB, rates and BTPs: what can change for the Italian market
The main impact concerns monetary policy. After the rate hike decided in June, the ECB arrives at its next meeting with a less tense, but still uncertain, picture. Slowing Italian inflation, together with the slowdown in prices in the main euro area economies, may reduce the urgency of new immediate moves, but does not eliminate the need to maintain a prudent line.
For the Italian market the most sensitive channel is that of returns. If investors begin to discount a less aggressive ECB, BTPs may benefit from less pressure on rates, with possible effects also on the spread and cost of debt financing. It’s an important step not only for the Treasury, but also for banks, utilities and capital-intensive companies.
Banks under scrutiny between margins, credit and dividends
The slowdown in inflation has a more complex interpretation for banks. On the one hand, lower rates can reduce the pressure on families and businesses, improving credit quality and containing the risk of insolvencies. On the other hand, a normalization of rates could make the interest margin less favorable, which in recent years has supported a significant part of bank profitability.
This is why the market looks at Italian banks with different attention compared to previous months. It is no longer enough to check whether profits remain high. Investors want to understand how sustainable the revenues are, what the evolution of fees will be, how the cost of risk will move and how much room there will be for dividends and buybacks.
The semi-annual season therefore becomes the real test. Any signal from the ECB on rates can directly impact the valuations of the sector.
The Fed remains the next test for Piazza Affari
The European picture, however, is not enough to explain the direction of the markets. Piazza Affari is also looking at the United States, where the next macroeconomic data will guide expectations on the Fed. Inflation, work and American consumption remain the variables that can move Treasuries, the dollar and risk appetite on global stock exchanges.
If the Fed maintains a tightening stance for longer, global yields may remain elevated and limit recovery space for bonds and rate-sensitive sectors. If, however, the US data lead to a less rigid monetary policy, the benefit could also extend to Europe, supporting stock markets, credit and sovereign debt.
The slowdown in Italian inflation is therefore good news, but it is not enough on its own to change the scenario. For Piazza Affari the game remains open between the ECB, the Fed, energy and half-yearly reports.
