The resiliency of the status quo is again on display. After much chin wagging and finger pointing after the Italian elections and the modest decline in Italian assets, they have bounced back today. Italian bonds and stocks are participating in today’s advance. Italian equities were off 0.5% yesterday and are up a 1.1% near midday in Milan. Italy’s 10-year yield rose three basis points yesterday is off five today.

It is true that in these early hours after the election, in which the center parties lost handily, the new government is hard to envision. There does seem to be a lot of posturing. However, recall that in September German SPD leader Schulz ruled out another grand coalition, but this past weekend, the SPD approved it, though with Schulz. Renzi offers to resign as leader of the PD, but only apparently after a new government is formed and the PD is not part of it.

Last week’s indication that the US Administration was preparing to put a 25% tariff on steel imports and a 10% tariff on aluminum sent ripples through the capital markets. It is the beginning of a tit-for-tat trade war were told. Shades of Smoot-Hawley. The system of checks and balances continues to unfold. 

Republican leaders have pressed the President to reconsider, as they successful did on his stance on guns and immigrants. Gary Cohn, head of the National Economic Council has reported pulled together an industry summit explain to the President why the tariffs will end up undermining the US economy and offset the beneficial impact of the tax cuts.

If persuasion is not sufficient, there is more Congress can do. Republican Senator Lee has proposed a bill, Global Trade Accountability Act, which would claw back some of the power the legislative branch has surrendered to the executive branch. It subjects all trade action to Congressional approval. There is scope for additional legislative action. The President may want to extend Trade Promotion Authority, but Congress can block this in the coming weeks. Also, there is talk of attaching an amendment to a bill that needs to be passed, such as the spending bill, that would block the tariffs.