Tomorrow after European hours Moody's will....>

ITALY: Tomorrow after European hours Moody's will unveil its scheduled sovereign

rating update for Italy. Moody's currently rates Italy at Baa3 stable (the

bottom notch of investment grade). This follows up the after hours decision by

Fitch on April 28 to downgrade Italy to BBB- stable and S&P's decision on April

24 to affirm Italy's BBB negative rating.

- A downgrade would be significant for BTPs and European bond markets. The first

round affect would be through some tracker funds that use Moody's ratings alone

or funds who have mandates not to hold bonds below IG grade from Moody's.

However, the bigger effect would be the concern that Moody's may not be the only

ratings agency to downgrade Italy. Active investors may start to accelerate

sales of BTPs to front run any further forced sales. This would drive the euro

weaker with at least some of the funds moved overseas. However, it would not

affect ECB purchases through the PEPP or collateral (due to the grandfathering

of ratings to pre-Covid levels).

- For BTP futures, our technical analyst sees key resistance at 139.77 with

near-term support at 135.43 and the bear trigger at 132.61.