May 3, 2024

Debt Sale in Italy Steadies Markets

In afternoon trading, the Euro Stoxx 50 index, a barometer of euro zone blue chip shares, rose 1.1 percent, while the FTSE 100 index in London was flat.

Standard Poor’s 500 index futures gained 0.8 percent, suggesting that Wall Street stocks would rise at the opening bell. On Wednesday, the S. P. 500 index fell 3.7 percent as the reverberations from the euro crisis grew.

Italy raised €5 billion, or $6.8 billion, in an auction Thursday of one-year securities. The Italian Treasury sold the full allotment of bonds on offer, but it paid an average rate of 6.09 percent to do so, far above the 3.57 percent it paid for a similar offering on Oct. 3. It also marked the most Italy has had paid for such debt since September 1997, when the country still used the lira.

Political confusion in Rome, where the government of Prime Minister Silvio Berlusconi is slowly headed toward an exit with no clear plan to fix the state’s finances, on Wednesday led to a sell-off in Italian debt. Yields on the country’s 10-year bonds rose sharply above 7 percent, the level at which Portugal, Greece and Ireland ended up receiving bailouts.

On Thursday morning, the 10-year bonds were trading to yield 6.93 percent, helped by secondary-market purchases by the European Central Bank, news agencies reported.

Officials in Brussels added to generally gloomy sentiment Thursday with a report that said the economy of the European Union had ground to a standstill.

“Growth has stalled in Europe, and there is a risk of a new recession,” the European economic and monetary affairs commissioner, Olli Rehn, said in a statement, warning that “no real improvement is forecast in the unemployment situation in the E.U. as a whole.”

Mr. Rehn said that if growth and job creation were to return, it was essential that the 27 European Union members restore confidence in their finances and speed up reforms.

“There is a broad consensus on the necessary policy action,” he said. “What we need now is unwavering implementation. On my part, I will start using the new rules of economic governance from day one.”

There was one victory for the embattled euro zone, as Moody’s Investors Service on Thursday assigned the top-notch AAA rating to the European Financial Stability Facility’s new 10-year benchmark bond. The E.F.S.F., Europe’s main bailout vehicle, is backed by the finances of the euro zone countries, and there had been concern that the bonds would not get a top rating.

In Asia, markets declined sharply Thursday, catching up with Wednesday’s action on Wall Street. The Nikkei 225 stock average in Tokyo fell 2.9 percent, while the Kospi index in Seoul tumbled 4.9 percent. The Hang Seng in Hong Kong sank 5.3 percent at the close, and the Shanghai composite index fell 1.8 percent.

Banking stocks continued to bear the brunt of the selling. Shares in HSBC, which warned
Wednesday that it expected more trouble with its North American mortgage business, sank 9.1 percent in Hong Kong.

Tim Condon, chief economist for Asia at ING Group in Singapore, labeled Thursday “a terrible day.”

“This will last until the Italian government does something to show progress toward balancing its budget,” Mr. Condon said.

Mr. Condon called the 7 percent yield on Italian bonds “a breach akin to the calling of the Greek referendum” on the bailout package, referring to the unexpected proposal by Prime Minister George Papandreou of Greece that threw financial markets into turmoil.

Mr. Condon said he expected the sell-offs across Asian markets to abate Friday but that the reaction would largely depend on the actions by Italian leaders later Thursday.

The volatility of the markets prompted analysts at Crédit Agricole’s investment banking unit to caution investors against overreacting.

“We would still argue that Italy’s budgetary fundamentals are improving, with the year-to-October central deficit of €12 billion better off than the same period last year, but this is being overshadowed by ongoing uncertainty surrounding Italian politics,” the Crédit Agricole CIB analysts said in a research note Thursday.

The auction of one-year bills last month saw an average yield of 3.57 percent, according to Crédit Agricole CIB, but this time the yield could reach more than 6 percent. “Clearly, this pace of yield rises is not sustainable,” the analysts said.

Gold futures rose 1.1 percent to $1,771.40 an ounce. U.S. oil futures rose 1.6 percent to $97.31 a barrel.

The dollar was lower against other major currencies. The euro ticked up to $1.3610 from $1.3543 late Wednesday in New York, while the British pound rose to $1.5938 from $1.5917.

The dollar fell to ¥77.60 from ¥77.81, and to 0.9043 Swiss francs from 0.9095 francs.

Kevin Drew contributed reporting from Hong Kong.

Article source: http://www.nytimes.com/2011/11/11/business/global/daily-stock-market-activity.html?partner=rss&emc=rss

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