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| Markets rattled by Italian and Spanish political turmoil - business live | Markets rattled by Italian and Spanish political turmoil - business live |
| (35 minutes later) | |
| It’s not just Italy causing concern of course: | It’s not just Italy causing concern of course: |
| #Spain's yield spread widening to German #bunds may not be as fast as #Italy, but still takes 10-year Spanish Bono yield to 1.662, up about 470 basis points since end March 1/ ^KO | #Spain's yield spread widening to German #bunds may not be as fast as #Italy, but still takes 10-year Spanish Bono yield to 1.662, up about 470 basis points since end March 1/ ^KO |
| At times like this it is worth looking at the VIX index - the so-called fear index which shows investors’ expectations of near term market volatility. | At times like this it is worth looking at the VIX index - the so-called fear index which shows investors’ expectations of near term market volatility. |
| So far today it has jumped 17% to 15.49, the highest level since the beginning of May. | So far today it has jumped 17% to 15.49, the highest level since the beginning of May. |
| Unless there is something lost in the translation here, this appears to be another unhelpful comment, this time from EU commissioner Günther Oettinger: | Unless there is something lost in the translation here, this appears to be another unhelpful comment, this time from EU commissioner Günther Oettinger: |
| 'The markets will teach the Italians to vote for the right thing', told me #EU commissioner #Oettinger in an exclusive interview in Strasbourg. More on @dwnews (full interview tonight at 21.00 DW/German) pic.twitter.com/oVPOPIMBUd | 'The markets will teach the Italians to vote for the right thing', told me #EU commissioner #Oettinger in an exclusive interview in Strasbourg. More on @dwnews (full interview tonight at 21.00 DW/German) pic.twitter.com/oVPOPIMBUd |
| As the Italian crisis continues, billionaire financier George Soros is in a negative mood about the EU in a speech today: | As the Italian crisis continues, billionaire financier George Soros is in a negative mood about the EU in a speech today: |
| Another "major" financial crisis may be looming and the EU faces an imminent existential threat, George Soros says https://t.co/Jkw1Rhq6Tk pic.twitter.com/TgzF12JRu9 | Another "major" financial crisis may be looming and the EU faces an imminent existential threat, George Soros says https://t.co/Jkw1Rhq6Tk pic.twitter.com/TgzF12JRu9 |
| As the Italian crisis grips investors, markets had become complacent in the wake of the QE support programmes from the world’s leading central banks, says Premier Asset Management’s Jake Robbins: | As the Italian crisis grips investors, markets had become complacent in the wake of the QE support programmes from the world’s leading central banks, says Premier Asset Management’s Jake Robbins: |
| The Presidential rejection of a democratically elected coalition government has thrown Italy into a constitutional crisis, one made worse given it was because of the coalition’s anti EU beliefs. In echoes of the euro crisis earlier this decade, these events could ultimately threaten the future of the EU, or at the very least, question it in its current form. | The Presidential rejection of a democratically elected coalition government has thrown Italy into a constitutional crisis, one made worse given it was because of the coalition’s anti EU beliefs. In echoes of the euro crisis earlier this decade, these events could ultimately threaten the future of the EU, or at the very least, question it in its current form. |
| Whilst it is no surprise that Italian yields have soared and equities plunged as investors reprice the actual risk of holding Italian assets, this crisis has been on the cards for some time and shows how complacent financial markets have become in the era of quantitative easing. At the same time there has been a noticeable slowdown in growth across the EU this year which will also continue to weigh on sentiment towards both Italian and EU wide assets. Throw in heightened geopolitical risks in other parts of the world such as the US and Asia, rising interest rates and the reduction in central bank support through quantitative easing, then the outlook for financial markets is far less certain than over the past few years. | Whilst it is no surprise that Italian yields have soared and equities plunged as investors reprice the actual risk of holding Italian assets, this crisis has been on the cards for some time and shows how complacent financial markets have become in the era of quantitative easing. At the same time there has been a noticeable slowdown in growth across the EU this year which will also continue to weigh on sentiment towards both Italian and EU wide assets. Throw in heightened geopolitical risks in other parts of the world such as the US and Asia, rising interest rates and the reduction in central bank support through quantitative easing, then the outlook for financial markets is far less certain than over the past few years. |
| Here’s Reuters’ latest report on the volatility in the markets: | Here’s Reuters’ latest report on the volatility in the markets: |
| A deepening political crisis in Italy, the euro zone’s third biggest economy, fuelled a heavy selloff in Italian assets and the euro reminiscent of the euro zone debt crisis of 2010-2012. | A deepening political crisis in Italy, the euro zone’s third biggest economy, fuelled a heavy selloff in Italian assets and the euro reminiscent of the euro zone debt crisis of 2010-2012. |
| Short-term Italian bond yields, which move inversely to price, were set for their biggest one-day jump since 1992, while Italian and wider euro zone banking stocks were set to suffer their worst day since August 2016. | Short-term Italian bond yields, which move inversely to price, were set for their biggest one-day jump since 1992, while Italian and wider euro zone banking stocks were set to suffer their worst day since August 2016. |
| Italy’s president has set the country on a path to fresh elections by appointing a former International Monetary Fund official as interim prime minister, with the task of planning for snap polls and passing the next budget. | Italy’s president has set the country on a path to fresh elections by appointing a former International Monetary Fund official as interim prime minister, with the task of planning for snap polls and passing the next budget. |
| The concern is that fresh elections could deliver an even stronger mandate for Italy’s anti-establishment, eurosceptic politicians. | The concern is that fresh elections could deliver an even stronger mandate for Italy’s anti-establishment, eurosceptic politicians. |
| “The spectacular rise of 2-year yields in Italy this morning reflects break-up or redenomination fears,” Martin van Vliet, ING Bank’s senior fixed income strategist, said. | “The spectacular rise of 2-year yields in Italy this morning reflects break-up or redenomination fears,” Martin van Vliet, ING Bank’s senior fixed income strategist, said. |
| Earlier Italy sold €5.5bn worth of six month bonds, but at the highest yield for more than five years. | Earlier Italy sold €5.5bn worth of six month bonds, but at the highest yield for more than five years. |
| Amid the turmoil surrounding the country’s political future, it sold the expected amount of bonds but at a yield or interest rate of an average 1.213%. At the previous auction for this maturity the yield was negative at -0.421%. | Amid the turmoil surrounding the country’s political future, it sold the expected amount of bonds but at a yield or interest rate of an average 1.213%. At the previous auction for this maturity the yield was negative at -0.421%. |
| There are more sales due on Wednesday - up to €6bn in five year and ten year bonds. | There are more sales due on Wednesday - up to €6bn in five year and ten year bonds. |
| US markets are expected to open lower in the wake of the European declines, with the Dow Jones Industrial Average forecast to lose around 190 points at the start of trading. | US markets are expected to open lower in the wake of the European declines, with the Dow Jones Industrial Average forecast to lose around 190 points at the start of trading. |
| Not sure this is an entirely helpful remark from the European Central Bank’s Vitor Constancio. When asked about any ECB help for Italy he is quoted as saying: “Italy knows the rules. They might want to read them again.” | Not sure this is an entirely helpful remark from the European Central Bank’s Vitor Constancio. When asked about any ECB help for Italy he is quoted as saying: “Italy knows the rules. They might want to read them again.” |
| Reuters reports: | Reuters reports: |
| Any intervention by the European Central Bank to help Italy in the event of liquidity problems must meet the bank’s mandate and “certain conditions”, its outgoing Vice-President was quoted as saying on Tuesday. | Any intervention by the European Central Bank to help Italy in the event of liquidity problems must meet the bank’s mandate and “certain conditions”, its outgoing Vice-President was quoted as saying on Tuesday. |
| “Italy knows the rules. They might want to read them again,” Vitor Constancio told Spiegel magazine in an interview, according to a pre-release, when asked if the central bank would intervene if needed and rescue Italy from insolvency. | “Italy knows the rules. They might want to read them again,” Vitor Constancio told Spiegel magazine in an interview, according to a pre-release, when asked if the central bank would intervene if needed and rescue Italy from insolvency. |
| The ECB’s never-used emergency bond buying scheme -- known as Outright Monetary Transactions or OMT -- is a potential tool to help Italy but comes with a long list of conditions. | The ECB’s never-used emergency bond buying scheme -- known as Outright Monetary Transactions or OMT -- is a potential tool to help Italy but comes with a long list of conditions. |
| For a country to be eligible for OMT, it must be in a European Financial Stability Facility/European Stability Mechanism adjustment or precautionary programme and support must be warranted from a monetary policy perspective. | For a country to be eligible for OMT, it must be in a European Financial Stability Facility/European Stability Mechanism adjustment or precautionary programme and support must be warranted from a monetary policy perspective. |
| A deepening political and constitutional crisis in Italy, the euro zone’s third biggest economy, fuelled a sharp rise in the country’s short-term borrowing costs on Tuesday and renewed selling in the euro and stocks. | A deepening political and constitutional crisis in Italy, the euro zone’s third biggest economy, fuelled a sharp rise in the country’s short-term borrowing costs on Tuesday and renewed selling in the euro and stocks. |
| Back with the markets, and analyst Joshua Mahony at IG, says: | Back with the markets, and analyst Joshua Mahony at IG, says: |
| With markets transfixed on affairs in Italy and Spain (amid a vote of no confidence for Rajoy), we are seeing a sharp shift into safe haven assets, driving the Japanese yen and gold prices higher in recent days. FTSE 100-listed gold producers Fresnillo and Randgold are the best performers in the bluechip index in early trade amid a shift into gold. We often see stocks benefit when currencies come under pressure, but the flight to safety this morning means the euro and the pound are also getting another pounding alongside the stock market declines. | With markets transfixed on affairs in Italy and Spain (amid a vote of no confidence for Rajoy), we are seeing a sharp shift into safe haven assets, driving the Japanese yen and gold prices higher in recent days. FTSE 100-listed gold producers Fresnillo and Randgold are the best performers in the bluechip index in early trade amid a shift into gold. We often see stocks benefit when currencies come under pressure, but the flight to safety this morning means the euro and the pound are also getting another pounding alongside the stock market declines. |
| Away from markets for a moment, and some good news for Pret A Manger employees after the takeover deal, as tweeted by the chain’s chief executive: | Away from markets for a moment, and some good news for Pret A Manger employees after the takeover deal, as tweeted by the chain’s chief executive: |
| Today is a big day for @Pret. As we welcome JAB, we’ll be thanking the people who really matter by giving each of our 12,000 employees £1,000 when the deal completes | Today is a big day for @Pret. As we welcome JAB, we’ll be thanking the people who really matter by giving each of our 12,000 employees £1,000 when the deal completes |
| Moody’s, which recently put Italy’s Baa2 credit rating on review for a downgrade, has commented on the latest developments. | Moody’s, which recently put Italy’s Baa2 credit rating on review for a downgrade, has commented on the latest developments. |
| It said Italy was likely to be downgraded if the next government pursued fiscal policies which were not sufficient to place the public debt ratio on a sustainable downward trajectory in the coming years. | |
| Its rating could be confirmed if there was an ambitious programme of structural reform by the next government. | Its rating could be confirmed if there was an ambitious programme of structural reform by the next government. |
| 🇮🇹 Moody’s: We will conclude the review when we will have better visibility on the policy direction of the country, which means that the time frame for the review may exceed the typical period of up to three months. | 🇮🇹 Moody’s: We will conclude the review when we will have better visibility on the policy direction of the country, which means that the time frame for the review may exceed the typical period of up to three months. |
| Not even during the 2010-2012 Eurozone crisis did Italian yields rise so rapidly in just a few hours of trading. pic.twitter.com/yV884hZZ6A | Not even during the 2010-2012 Eurozone crisis did Italian yields rise so rapidly in just a few hours of trading. pic.twitter.com/yV884hZZ6A |
| Neil Wilson, chief market analyst for Markets.com, says: | Neil Wilson, chief market analyst for Markets.com, says: |
| We’ve seen a steep selloff in risk assets as the Italian political troubles deepen, with investors seemingly dumping their exposure to Italy. Whilst a lot has already been written on the topic, the moves this morning warrant attention as we are seeing some incredible price action in Italian bonds with the market moving at speeds not seen since the worst of the Eurozone debt crisis. | We’ve seen a steep selloff in risk assets as the Italian political troubles deepen, with investors seemingly dumping their exposure to Italy. Whilst a lot has already been written on the topic, the moves this morning warrant attention as we are seeing some incredible price action in Italian bonds with the market moving at speeds not seen since the worst of the Eurozone debt crisis. |
| The big question is whether this is just an Italian problem or one that risks significant spill-over into the rest of Europe. The one thing that has become apparent is that markets treated the election result with excessive calm and has been jolted by the populists’ success in agreeing terms... | The big question is whether this is just an Italian problem or one that risks significant spill-over into the rest of Europe. The one thing that has become apparent is that markets treated the election result with excessive calm and has been jolted by the populists’ success in agreeing terms... |
| For now this looks contained largely to Italy, but the contagion risks mount. Italian bond moves are isolated and whilst the euro has given some ground again it is mounting a firm defence above 1.15 for the time being. Italian stocks today are underperforming Europe, with the FTSE MIB falling more than 3% before bargain hunters produced a slight paring of the losses. However, the situation – which increasingly is a crisis in the making – is seeing investors take risk off the table and stocks across Europe are 1-2% lower. | For now this looks contained largely to Italy, but the contagion risks mount. Italian bond moves are isolated and whilst the euro has given some ground again it is mounting a firm defence above 1.15 for the time being. Italian stocks today are underperforming Europe, with the FTSE MIB falling more than 3% before bargain hunters produced a slight paring of the losses. However, the situation – which increasingly is a crisis in the making – is seeing investors take risk off the table and stocks across Europe are 1-2% lower. |
| Italian bond yields have risen sharply and spreads are widening with Bunds. The Italian 2-year yield has jumped above 2% and has kept on going, approaching 2012 sovereign debt crisis territory at 2.4%. Spreads with 10-year Bunds are now at the widest since 2013 and the market is moving before our eyes. | Italian bond yields have risen sharply and spreads are widening with Bunds. The Italian 2-year yield has jumped above 2% and has kept on going, approaching 2012 sovereign debt crisis territory at 2.4%. Spreads with 10-year Bunds are now at the widest since 2013 and the market is moving before our eyes. |
| Eurozone breakup risks are higher, although they remain small overall (unless you take the long term view that every empire falls at some point and the EU is no different). If snap elections produce a clearer mandate for the populists and they succeed again in forming a government, Italy heads for a collision for the EU shortly after. EU and Eurozone rules are far too inflexible to handle radical domestic policy shifts of this kind and based on experience of Brexit negotiations, Italy could not hope for the EU rule makers to back down. A disorderly Italexit would be nasty enough but as a founding member of the club it would be a moment that the bloc would not recover from. | Eurozone breakup risks are higher, although they remain small overall (unless you take the long term view that every empire falls at some point and the EU is no different). If snap elections produce a clearer mandate for the populists and they succeed again in forming a government, Italy heads for a collision for the EU shortly after. EU and Eurozone rules are far too inflexible to handle radical domestic policy shifts of this kind and based on experience of Brexit negotiations, Italy could not hope for the EU rule makers to back down. A disorderly Italexit would be nasty enough but as a founding member of the club it would be a moment that the bloc would not recover from. |
| The chief risk is that the developments over the last week lead to a snap election that becomes in effect a referendum on membership of the euro. The two main populist parties may well step up their anti-euro, and anti-EU positions. | The chief risk is that the developments over the last week lead to a snap election that becomes in effect a referendum on membership of the euro. The two main populist parties may well step up their anti-euro, and anti-EU positions. |
| The head of Italy’s central bank has said the country’s economy is recovering and growth is increasingly self sustained, but said any move to weaken the country’s public finances could undermine confidence and years of valuable reforms. | The head of Italy’s central bank has said the country’s economy is recovering and growth is increasingly self sustained, but said any move to weaken the country’s public finances could undermine confidence and years of valuable reforms. |
| Ignazio Visco, speaking to the bank’s annual meeting, made the comments amid the political turmoil which is likely to lead to a new election, with euro membership likely to be among the main issues for voters. | Ignazio Visco, speaking to the bank’s annual meeting, made the comments amid the political turmoil which is likely to lead to a new election, with euro membership likely to be among the main issues for voters. |
| Visco added that moderate growth and gradually rising inflation were the most likely path for Italy. | Visco added that moderate growth and gradually rising inflation were the most likely path for Italy. |
| He said he expected Italy’s smaller banks to come up with plans to tackle non-performing loans by the autumn, with a quarter of them showing a negative return on equity. | He said he expected Italy’s smaller banks to come up with plans to tackle non-performing loans by the autumn, with a quarter of them showing a negative return on equity. |
| He said Italy must press on with reforms, and there were no short cuts for cutting debt. “We are only ever a few short steps away” from a serious risk of losing trust, he said. | He said Italy must press on with reforms, and there were no short cuts for cutting debt. “We are only ever a few short steps away” from a serious risk of losing trust, he said. |
| The market rout is intensifying, in the wake of the Italian political crisis. | The market rout is intensifying, in the wake of the Italian political crisis. |
| The FTSE 100 is now down nearly 120 points or 1.5%, Germany’s Dax is down 1.6% and France’s Cac has fallen 1.87%. | The FTSE 100 is now down nearly 120 points or 1.5%, Germany’s Dax is down 1.6% and France’s Cac has fallen 1.87%. |
| As for Italy, the FTSE MIB is now down 3.2%. Italian two year bond yields are on track for the biggest one day rise for more than 16 years. | As for Italy, the FTSE MIB is now down 3.2%. Italian two year bond yields are on track for the biggest one day rise for more than 16 years. |
| Ooft. Italian 2-year yield up 126 bps today, blowing away even the biggest increases at the height of the 2011-12 euro debt crisis. This is on course for the biggest one-day rise since Sept 1992. pic.twitter.com/Eh7e37QNmG | Ooft. Italian 2-year yield up 126 bps today, blowing away even the biggest increases at the height of the 2011-12 euro debt crisis. This is on course for the biggest one-day rise since Sept 1992. pic.twitter.com/Eh7e37QNmG |
| But the yields on UK gilts have fallen to their lowest levels this year as investors seek havens for their cash amid the turmoil. | But the yields on UK gilts have fallen to their lowest levels this year as investors seek havens for their cash amid the turmoil. |
| The euro is also being hit, down 0.3% against the dollar and below $1.16 for the first time in six and a half months. | The euro is also being hit, down 0.3% against the dollar and below $1.16 for the first time in six and a half months. |
| But the pound is not benefiting much, flat against the euro at €1.1451 and down 0.6% against the dollar to $1.3220, its lowest since November. | But the pound is not benefiting much, flat against the euro at €1.1451 and down 0.6% against the dollar to $1.3220, its lowest since November. |