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Euro Watch: European Markets Dip Amid Italian Uncertainty

February 27, 2013 by Leave a Comment

European leaders argued for calm, stressing that the political confusion would soon clear up and that negative market reaction would be short-lived as Italians and their European partners returned to the work of building greater integration. But they also stressed that the course of reform started under the current prime minister, Mario Monti, must be continued, for the good of the 17-nation euro zone.

Results indicated that the center-left Democratic Party, led by Pier Luigi Bersani, would have a majority in the Lower House, thanks to the premium of bonus seats given to the largest bloc. But it would only have about 119 seats in the Senate, compared to 117 seats for the center-right People of Liberty party, led by former Prime Minister Silvio Berlusconi — far short of the majority of 158 required to govern.

Mr. Berlusconi hinted that his party might be inclined to form a grand coalition with the Democratic Party, a prospect that would be ideologically incoherent but that experts said might be the only governing coalition possible, given the results.

Mr. Monti’s party, which had helped restore investor confidence at the cost of unpopular spending cuts and tax increases, dropped into last place, behind the protest vote winner, the Five Star Movement of the former comedian Beppe Grillo. The result left the recession-weary nation with no clear path forward and the possibility that another round of elections might be necessary.

The Euro Stoxx 50 index, a barometer of euro zone blue chips, fell 3.1 percent, while the FTSE 100 index in London dipped 1.3 percent. The MIB stock index in Milan slid 4.9 percent.

Investors also dumped Italian debt. The yield on the 10-year sovereign bond, which moves in the opposite direction of the price, rose 40 basis points to almost 4.9 percent. Portuguese, Spanish and Greek bond prices also fell.

Bond yields have a direct effect on government financing costs, and it was the rise in Italian and Spanish government yields that led the European Central Bank to promise last July that it would do whatever necessary to save the euro. The Italian stalemate risks releasing the market pressure that the E.C.B.’s action was meant to end.

The euro was roughly unchanged at $1. 3061, after falling sharply Monday in New York.

Uncertainty about the Italian situation echoed around the world. Asian shares dropped Tuesday, with the Nikkei 225 stock average in Tokyo closing down 2.26 percent and the Hang Seng index in Hong Kong closing down 1.32 percent. New York stocks fell Monday, but were little changed Tuesday afternoon.

Olivier Bailly, a spokesman for the European Commission, the policy making arm of the European Union, on Tuesday urged Italy to form a government and to continue policies aimed at bringing down its public debt.

“The European Commission places its full confidence in Italian democracy, and the European Commission will work closely with the new government in order to relaunch growth and the creation of jobs in Italy,” Mr. Bailly said during a news conference in Brussels.

He suggested that continuing reforms was the best way to combat the instability on financial markets that followed the vote. “Markets are free to react the way they want,” he said. Italian leaders needed to “establish a political majority that will continue to deliver a growth and jobs agenda, which is basically what Italy needs in order to reduce the unsustainable level of its debt.”

According to a recent and wide-ranging study on the reform prospects for countries in the euro zone, the Lisbon Council, a research organization based in Brussels, concluded that Italy ranked last among all countries that use the euro in terms of its ability to generate economic growth over the long term.

Luis de Guindos, the Spanish economy minister, said on Tuesday that he was confident that the negative impact of the Italian vote on financial markets would be “only in the short term.” He told Spanish reporters that Italy would eventually manage to form “a stable government,” which would also be in the interest of Spain and the rest of the euro zone.

Before the election, Germany made very clear its expectations that whoever takes over in Rome must continue to implement the course of reforms begun under Mr. Monti. This line echoed throughout Berlin on Tuesday.

“It is important that Italy have a functioning government,” Michael Grosse-Broemer, an important ally of Chancellor Angela Merkel and parliamentary floor leader of her center-right party, said Tuesday. “Mr. Monti’s course of reform must be continued.”

“There is no alternative to the course of structural reform that has been started,” Philip Rösler, Germany’s economy minister, told the German public broadcaster ARD, adding his disappointment at the apparent lack of support for the country’s pro-reform parties .

Guido Westerwelle, the foreign minister, also called for Italy to swiftly form a “stable and functioning government,” stressing its importance for the rest of Europe.

But Werner Faymann, chancellor of Austria, warned against allowing concerns over the future Italian government to spark another debate over the future of the euro, insisting that the common currency was strong enough to withstand a period of instability.

“The euro remains stable even when it is not yet clear in any given country how a government will be formed,” Mr. Faymann said, according to ARD.

How worried Germans are about what political chaos in Rome could mean for them came across clearly in the German media.

“The election shows that Italy remains susceptible for populist slogan. This is demonstrated by the nearly 25 percent support for the cheap, angry outbursts of the anti-party of comedian Beppe Grillo. And then the 30 percent for Berlusconi,” wrote the daily Tagesspiegel in a commentary on Tuesday, pointing out that amounted to about every second voter supporting a populist.

“It is a very scary prospect that does not engender hope for Italy’s future,” the newspaper wrote. “We are a long way from a cure for the Berlusconi disease.”

David Jolly reported from Paris. Rachel Donadio in Rome, James Kanter in Brussels, Melissa Eddy in Berlin, Raphael Minder in Madrid, and Landon Thomas Jr. in London contributed reporting.

Article source: http://www.nytimes.com/2013/02/27/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

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Euro Watch: Italian Political Turmoil Weighs on Markets

December 10, 2012 by Leave a Comment

Former Prime Minister Silvio Berlusconi said he would again seek Italy’s highest office, leading Mario Monti, the unelected official who currently holds the office, to say he would step down.

Mr. Monti has restored Italy’s credibility with investors, giving the country a break on its borrowing costs. But those gains have come at the cost of painful austerity measures that have worsened the country’s economic situation, and given Mr. Berlusconi an opening to attack.

Mr. Monti will leave after Parliament passes a budget this month and may contest national elections against Mr. Berlusconi, with the vote — previously scheduled for April — now possible as early as February or March.

Mr. Berlusconi, a four time prime minister, left office a year ago as markets pushed Italy to the brink of financial collapse.

The Milan benchmark MIB index was down 3.6 percent in the early European afternoon, with trading halted in the shares of two banks, Monte Paschi and Banca Popolare di Milano, after they fell by their maximum daily limit.

The yield gap, or spread, between Italian 10-year sovereign bonds and equivalent German securities, the European benchmark for safety, grew to 3.61 percentage points Monday from 3.25 points late Friday, suggesting that investors were growing more wary of holding Italian debt. Italian 10-year bonds were trading to yield xxx by midday Monday.

A barometer of euro zone blue-chip stocks, the Euro Stoxx 50 index, fell 1.1 percent. The euro was little changed from its levels in New York Friday, at $1.2907.

“It’s as if a tank moved through” the market, said Mario Sechi, editor in chief of the Rome daily Il Tempo, speaking on Radio 24 on Monday morning. Like many Italian commentators, Mr. Sechi expressed reservations about Mr. Berlusconi’s decision to return to politics.

A dismal economic report Monday served as a reminder that despite Mr. Monti’s success with investors, the real economy continues to suffer. Italian industrial production fell a seasonally adjusted 1.1 percent in October from September, and by 6.2 percent from a year earlier, the national Istat statistics agency reported from Rome.

The coming Italian election “remains high on our list of tail risks for 2013,” Holger Schmieding, an economist in London with Berenberg Bank, wrote in a research note. “A Berlusconi campaign against ‘German austerity’ could potentially unsettle markets,” he noted, and possibly push Spain or Italy into a bailout and additional bond purchases by the European Central Bank to hold down borrowing costs.

Spanish bonds also came under renewed pressure following Mr. Monti’s announcement, with the risk premium demanded by investors for holding Spanish 10-year bonds rather than equivalent German bonds rising to 4.38 percentage points on Monday morning, from 4.16 points on Friday.

Luís de Guindos, the economy minister, warned that Italy’s political turmoil would have an impact on Spain. “When doubts emerge over the stability of a neighboring country like Italy, which is also seen as vulnerable, there’s an immediate contagion for us,” he said Monday morning on Spanish national radio.

Asked whether Spain would itself seek further European rescue funding, the minister instead said that “the help that Spain needs is that the doubts over the future of the euro be removed.”

Speaking ahead of the Nobel prize awards on Monday, the European Commission president, José Manuel Barroso, said that Italy had to “continue on the road of structural reforms.” The elections, Mr. Barroso said on Sky News, “must not be used to postpone reforms.”

David Jolly reported from Paris. Raphael Minder contributed reporting from Madrid.

Article source: http://www.nytimes.com/2012/12/11/business/global/11iht-eurozone11.html?partner=rss&emc=rss

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Stocks and Bonds: Wall Street Rises Until the Final Hours

September 21, 2011 by Leave a Comment

The early gains, mirroring those in European markets, suggested that investors had shrugged off the downgrade of Italy’s debt by the credit ratings agency Standard Poor’s. The S. P. downgrade late Monday took aim at the euro zone’s most indebted member after Greece.

On Wall Street, the major indexes were about 1 percent higher for most of the day, but closed mixed. The Dow Jones industrial average was up 7.65 points, or 0.1 percent, at 11,408.66, and the Standard Poor’s 500-stock index was down 2 points, or 0.2 percent, at 1,202.09. The Nasdaq composite index was down 22.59 points, or 0.9 percent, at 2,590.24. The Euro Stoxx 50 index was up 2.1 percent and the FTSE 100 in London rose 2 percent.

Analysts said investors could have reacted to discussions about aiding Greece, where talks with foreign creditors — the International Monetary Fund, the European Commission and the European Central Bank — described as productive on Monday continued on Tuesday. That buoyed some of the sentiment during the day, although uncertainty over the meeting seemed to take hold in the last hour of trading in the United States, said Stephen J. Carl, head equity trader at the Williams Capital Group.

After the market closed, the Greek Finance Ministry said the talks yielded “satisfactory progress.”

In addition, many investors have concluded that the Federal Reserve will announce new steps to promote economic growth after a two-day meeting of its policy-making group ends on Wednesday.

“The thought is that Operation Twist is going to be announced tomorrow,” said Michael A. Mullaney, a vice president for the Fiduciary Trust Company, using an insider phrase to describe when the Fed sells shorter-term securities for longer-term ones. “Quite frankly, most likely it is going to be ‘buy the rumor, sell the news.’ ”

Such a move by the Fed would reflect an effort to reduce long-term interest rates, which would allow businesses and consumers to borrow more cheaply. The United States Treasury’s 10-year note rose 5/32, to 101 22/32. The yield fell to 1.94 percent, from 1.96 percent late Monday. In explaining its move on Italy, S. P. cited weakening prospects for economic growth and higher-than-expected levels of government debt as reasons for lowering its debt rating by one notch to A from A+.

Matthew Saltmarsh, Niki Kitsantonis and Elisabetta Povoledo contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=be23b7d4340eaa266f83dd074d0fe60c

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Asian and European Markets Recover After Turmoil

August 15, 2011 by Leave a Comment

Investors’ attention was focused on a meeting Tuesday of the German chancellor, Angela Merkel, and Nicolas Sarkozy, the French president. The two leaders will be addressing the threat to the euro zone posed by low growth and teetering public finances in some euro members, their room to maneuver circumscribed by fears that France could be next in line for market attacks.

In early trading on Monday, the Euro Stoxx 50 index, a barometer of euro zone blue chips, rose 0.9 percent, while the FTSE 100 index in London gained 0.5 percent.

Trading in U.S. index futures suggested that Wall Street stocks would rise at the opening bell, as well. The Standard Poor’s 500 index rose 0.5 percent Friday, after a rollercoaster performance during the week, as investors struggled to assess the impact of the U.S. ratings downgrade.

Asian shares rose, with the Tokyo benchmark Nikkei 225 stock average gaining 1.4 percent.

The main Sydney market index, the SP/ASX 200, jumped 2.6 percent. In Hong Kong, the Hang Seng was up 3.3 percent, and in Shanghai, the composite index rose 1.3 percent.

Comex gold futures rose $3.90 to $1,746.50. U.S. crude oil futures for September delivery rose 0.2 percent to $85.54.

Many European investors were taking the Assumption Day holiday off, though markets were open for business across most of the Continent.

In Japan, second-quarter gross domestic product data showing that the economy there had contracted less severely than expected also helped lift sentiment.

The statistics, released by the Cabinet Office early Monday, showed that the Japanese economy, which was battered by a massive earthquake and tsunami in March, had contracted 0.3 percent from the previous quarter, indicating that economic activity had rallied more quickly than expected after the disaster.

The dollar was mixed against other major currencies. The euro rose to $1.4319 from $1.4248 late Friday in New York, while the British pound rose to $1.6294 from $1.6276.

But the dollar was higher against the yen, rising to 76.84 yen from 76.67 yen, and gained to 0.7943 Swiss francs from 0.7777 francs.

“Decent data on Thursday and Friday last week brought a semblance of stability to markets,” analysts at DBS in Singapore wrote in a research note on Monday, referring to U.S. retail sales and jobless figures that were both relatively upbeat.

“Housing, inflation and industrial production will have the do the trick this week,” the DBS analysts commented. “It won’t be easy.”

Bettina Wassener reported from Hong Kong.

Article source: http://feeds.nytimes.com/click.phdo?i=d91394cbc5b968f7422bf4eaab68816a

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Euro Zone Rescue Effect Appears to Peter Out

July 26, 2011 by Leave a Comment

Officials in Brussels agreed last week to bolster the European Financial Stability Facility and to provide Greece with new financing on more favorable terms. Those terms would also be available to the other euro zone members that have received bailouts, Portugal and Ireland.

But as investors examine the details of the package, too many questions remain unresolved, Martin van Vliet, an economist at ING Bank in Amsterdam, said.

The bailout package “was a huge leap for European politicians,” he said. “But it was a small step for the market.”

The Euro Stoxx 50 index, a barometer of blue chips in the 17 countries that share the euro, had been on a winning streak since July 18, when it fell to a 2011 low. But on Tuesday it slipped 0.11 percent.

A rally in the government bonds of “peripheral” euro zone members, including Spain and Italy, the two countries that European and International Monetary Fund officials are determined to protect, also petered out, with yields ticking back to around the 6 percent level at which they stood before the deal.

In perhaps the best barometer of investor enthusiasm, both Italy and Spain held debt auctions Tuesday, with somewhat disappointing results.

Spain sold €2.9 billion, or $4.2 billion, of three- and six-month bills, paying more and meeting with weaker demand than at a similar auction in June, the central bank said. The three-month debt was priced to yield 1.899 percent, while the six-month debt moved at 2.519 percent.

The Italian Treasury sold €7.5 billion of six-month bills that were priced to yield 2.269 percent, a much higher level than the 1.988 percent yield that resulted from a similar auction last month. It also auctioned €1.5 billion of two-year zero-coupon bonds priced to yield 4.038 percent.

Mr. van Vliet noted that Greece remained hobbled by its borrowings and said that there was also a risk that the government in Athens would be unable to keep its promises to reduce expenditure and raise revenue.

“I think there’s probably another Greek bailout to come,” he said.

But the bigger problem, he said, was with the E.F.S.F. itself. While officials agreed to make the bailout fund more flexible and enhanced its role, they did not increase its size, and as a result it may prove unequal to the task ahead if countries beyond Greece, Portugal and Ireland run seriously afoul of the market.

“I’m not certain they could help Spain,” he said, “not to mention Italy, if either of those had trouble.”

Christine Lagarde, the I.M.F. chief, said Tuesday in New York that “the agreement shows that European leaders believe in the euro zone.” But, she added, according to prepared remarks, “turbulence could easily resurface. For this reason, it is essential that the summit’s commitments should be implemented quickly.”

The euro itself has been doing relatively well, at least against the dollar, ticking up to $1.4509 on Tuesday, from $1.4425 before the deal was announced Thursday. But that may not be the best indicator, as the U.S. currency is under pressure owing to a political battle over raising the debt ceiling in Washington.

In one bright spot, the number of banks lining up for cheap European Central Bank loans dropped by one-third Tuesday, a possible sign that the deal last week had helped restore a measure of confidence and made it easier for weaker institutions to borrow in open markets.

Total demand for E.C.B. cash remained high, however, indicating that a significant number of institutions still faced doubts about their creditworthiness. In E.C.B. data released Tuesday, 193 banks took out one-week loans at 1.5 percent interest; 291 banks did so last week. The banks borrowed €164 billion, down from €197 billion last week but still well above normal levels.

The E.C.B.’s weekly lending operation is considered a measure of the health of the European banking system, reflecting banks’ willingness to lend to each other. Many banks in Greece, Portugal, Ireland and some other countries have been frozen out of money markets because of fears that they are vulnerable to their home countries’ debt woes.

Mr. van Vliet said he was ultimately optimistic about the euro zone’s prospects.

“At least the politicians have signaled their willingness to do whatever is necessary to address it in the future,” he said. “But it’s not necessarily going to happen at the speed everyone hoped. It’s going to be a slow-motion process.”

Jack Ewing reported from Frankfurt.

Article source: http://www.nytimes.com/2011/07/27/business/global/euro-zone-rescue-effect-appears-to-peter-out.html?partner=rss&emc=rss

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Worries Over Italy’s Debt Drag Down Markets

July 12, 2011 by Leave a Comment

As investors fretted about a new wave of financial instability, the euro slumped to its lowest level since March and borrowing costs rose again for Europe’s weaker economies.

At the opening, the Dow Jones industrial average shed just a handful of points, off 9.38 to 12,496.38. The Standard Poor’s 500-stock index lost 2.26 points to 1,317.23.

European indexes, after declining sharply in morning trading, regained some ground in the afternoon. The Euro Stoxx 50 index, a barometer of euro zone blue chips, was down 1.20 percent. The FTSE 100 index in London slid 1.16 percent.

In the day’s most dramatic action, the main Italian stock market index slid more than 4 percent in morning trading, before bouncing most of the way back, after Economy Minister Giulio Tremonti returned to Rome early from a meeting of euro zone officials to take charge of discussions on new austerity measures and the government successfully sold one-year debt.

Mr. Tremonti is held up by many investors as being instrumental to Italy’s bid for market credibility. Silvio Berlusconi, the embattled prime minister, led investors to ditch Italian debt last week when he suggested Mr. Tremonti might be forced out of the government.

Italy has begun moving into the front of investors’ consciousness, but the question of how to aid Greece remains unsolved. In a letter to Jean-Claude Juncker, the Eurogroup president, the Greek Prime Minister George Papandreou complained that market turmoil was undermining his government’s efforts at economic reform, and called for “collective forceful decisions” from his European partners.

European finance officials met for six hours Monday in Brussels but failed to resolve a long-running dispute over private sector involvement in a second bailout for Greece.

“If Europe does not make the right, collective, forceful decisions now, we risk new, and possibly global, market calamities due to a contagion of doubt that could engulf our common union,” Mr. Papandreou wrote.

Holger Schmieding, chief economist at Berenberg Bank in London, wrote in a research note that Greece was not the euro zone’s main problem. “Instead, the massive contagion from the small periphery to the big bond markets of Italy and Spain in the last four trading days has turned into the real problem,” he said.

Asian shares were down across the board. The Tokyo benchmark Nikkei 225 stock average fell 1.4 percent. The main Sydney market index, the SP/ASX 200, fell 1.9 percent, In Hong Kong, the Hang Seng index fell 3.1, and in Shanghai the composite index fell 1.7 percent.

Data released Tuesday showed that bank lending in China had remained more buoyant than expected in June, fanning expectations that Beijing may tighten lending requirements or raise interest rates again in its battle to contain inflation.

The Bank of Japan Governor Masaaki Shirakawa said that global economic growth was “slowing somewhat,” Reuters reported from Tokyo. “The U.S. economy faces severe balance sheet adjustments, and sovereign problems pose a risk to Europe,” he said.

Also on Tuesday, Moody’s issued a list of Chinese companies that raised “red flags” at the ratings agency because of possible governance or accounting risks, causing the shares of those companies to tumble.

New York crude oil futures fell 1.2 percent to $94.02 a barrel.

The euro slumped, falling to $1.3918 from $1.4029 late Monday. The dollar fell to 79.59 yen from 80.26 yen, signaling that Japanese investors were becoming more risk averse and repatriating overseas funds.

The worries about Italy have further shaken already fragile global market sentiment. Even though Italy retains solid debt ratings, a sound banking system and a relatively small budget deficit compared to the size of its economy, it is plagued with high debt, feeble growth and political paralysis.

The jitters prompted the Italian stock market regulator on Monday to impose emergency rules against short selling after shares in Italian banks slumped for a fifth straight session.

The cost of insuring Italy’s sovereign debt against default surged to an all-time high, and the interest on its 10-year bond leaped to 5.8 percent before falling back.

“The current escalation of the euro area periphery crisis is the third period in which the problems facing Greece, Ireland and Portugal have seriously threatened more serious contagion in the euro area,” Paul Robinson, an analyst at Barclays Capital, wrote in a note.

As grave as the situation is, however, he added, “the previous episodes during which Spain and Italy were significantly affected proved temporary, and the situation facing both economies is far less serious than in Greece’s case.”

Bettina Wassener reported from Hong Kong. Niki Kitsantonis contributed reporting from Athens.

Article source: http://feeds.nytimes.com/click.phdo?i=c33a79c8e1de589fa9ecc91fff453f3a

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