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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) | |
| 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. | |
| 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 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 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. | |
| 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. | |
| 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. | |
| It may not have taken in the latest developments, but the recent political uncertainty in Italy has hit consumer confidence. | It may not have taken in the latest developments, but the recent political uncertainty in Italy has hit consumer confidence. |
| The confidence index fell to 113.7 in May, the lowest since August last year and below the 116.5 level expected by analysts. The April figure came in at 116.9. | The confidence index fell to 113.7 in May, the lowest since August last year and below the 116.5 level expected by analysts. The April figure came in at 116.9. |
| The business morale index fell from 105.0 to 104.7 in May, the worst level since January last year. | The business morale index fell from 105.0 to 104.7 in May, the worst level since January last year. |
| Oops! #Italexit back in the spotlight. #Italy's likelihood of leaving the Euro more than tripled from 3.6% to 11.3%. So, the troublesome calm in the euro zone is a thing of the past, Sentix says. pic.twitter.com/lPLDim3sXT | Oops! #Italexit back in the spotlight. #Italy's likelihood of leaving the Euro more than tripled from 3.6% to 11.3%. So, the troublesome calm in the euro zone is a thing of the past, Sentix says. pic.twitter.com/lPLDim3sXT |
| Time to call this a crisis, says Kit Juckes of Societe Generale: | Time to call this a crisis, says Kit Juckes of Societe Generale: |
| Having rejected the NL/5-star leaders’ nomination of Paolo Savona as [Italian] Economy Minister, President Mattarella has called on Carlo Cottarelli to form an interim administration. | Having rejected the NL/5-star leaders’ nomination of Paolo Savona as [Italian] Economy Minister, President Mattarella has called on Carlo Cottarelli to form an interim administration. |
| His chances of succeeding are slim and elections are likely in September. Which leaves us 3-4 months of uncertainty ahead of a vote that may be seen as a referendum on Euro-membership. The threat of further rating downgrades hangs over the BTP [Italian bond] market (and is largely priced-in), and the European Central Bank’s plans for providing forward guidance on policy normalisation are up in the air. Which means that the risk of EUR/USD reaching 1.10 by the end of the summer is significantly higher than the possibility of a recovery to 1.20. | His chances of succeeding are slim and elections are likely in September. Which leaves us 3-4 months of uncertainty ahead of a vote that may be seen as a referendum on Euro-membership. The threat of further rating downgrades hangs over the BTP [Italian bond] market (and is largely priced-in), and the European Central Bank’s plans for providing forward guidance on policy normalisation are up in the air. Which means that the risk of EUR/USD reaching 1.10 by the end of the summer is significantly higher than the possibility of a recovery to 1.20. |
| With 10-year Bund yields under 30bp this morning, and the BTP/Bund spread heading towards 3% at a rate of knots, we should now call this a crisis. The 2010 and 2011-2012 Euro crises took EUR/USD down by 20-25%, which may put the 10% we’ve seen so far in context. Both those falls were almost completely reversed when the crisis passed, but that’s for another day, even if that day comes sooner as result of these developments. EUR/USD 1.1550 is the next key psychological level but I can’t see it holding. 1.0860, the springboard from which the euro rallied after the French election, should hold.... | With 10-year Bund yields under 30bp this morning, and the BTP/Bund spread heading towards 3% at a rate of knots, we should now call this a crisis. The 2010 and 2011-2012 Euro crises took EUR/USD down by 20-25%, which may put the 10% we’ve seen so far in context. Both those falls were almost completely reversed when the crisis passed, but that’s for another day, even if that day comes sooner as result of these developments. EUR/USD 1.1550 is the next key psychological level but I can’t see it holding. 1.0860, the springboard from which the euro rallied after the French election, should hold.... |
| As expected the threat of a new eurozone crisis - this time involving Italy and/or Spain rather than Greece - has sent markets sharply lower in early trading. | As expected the threat of a new eurozone crisis - this time involving Italy and/or Spain rather than Greece - has sent markets sharply lower in early trading. |
| The FTSE 100 is down 0.78% at 7670, while Germany’s Dax has dropped 0.6% and France’s Cac 0.69%. | The FTSE 100 is down 0.78% at 7670, while Germany’s Dax has dropped 0.6% and France’s Cac 0.69%. |
| As for the two countries in the spotlight, Italy’s FTSE MIB has lost 1.9% to hit its lowest level since August last year, while the country’s banking index is down3.4% at a new 13 month low. | As for the two countries in the spotlight, Italy’s FTSE MIB has lost 1.9% to hit its lowest level since August last year, while the country’s banking index is down3.4% at a new 13 month low. |
| Meanwhile Spain’s Ibex is off 1.29%. | Meanwhile Spain’s Ibex is off 1.29%. |
| More on the sale of ubiquitous sandwich chain Pret A Manger: | More on the sale of ubiquitous sandwich chain Pret A Manger: |
| Pret a Manger, the British sandwich shop chain, is being taken over by the German-controlled company behind Krispy Kreme donuts and Kenco coffee in a deal worth more than £1.5bn. | Pret a Manger, the British sandwich shop chain, is being taken over by the German-controlled company behind Krispy Kreme donuts and Kenco coffee in a deal worth more than £1.5bn. |
| Bridgepoint, the UK-based private equity firm, has agreed to sell Pret to the investment group JAB Holdings, which has been rapidly acquiring companies linked to the coffee market in recent years. | Bridgepoint, the UK-based private equity firm, has agreed to sell Pret to the investment group JAB Holdings, which has been rapidly acquiring companies linked to the coffee market in recent years. |
| Pret is based in London, where it was started by the entrepreneur Julian Metcalfe and his friend Sinclair Beecham with one shop in 1986. Metcalfe went on to create the Itsu restaurant chain and Metcalfe’s skinny popcorn. | Pret is based in London, where it was started by the entrepreneur Julian Metcalfe and his friend Sinclair Beecham with one shop in 1986. Metcalfe went on to create the Itsu restaurant chain and Metcalfe’s skinny popcorn. |
| Having expanded rapidly in recent years, opening 50 shops in the past year alone, Pret has more than 500 stores, generating revenues of £879m. It also has stores in the US, China and Dubai. | Having expanded rapidly in recent years, opening 50 shops in the past year alone, Pret has more than 500 stores, generating revenues of £879m. It also has stores in the US, China and Dubai. |
| The company is trying to attract more British workers as it prepares for potential staff shortages after Brexit and seeks to expand further in the US and internationally. | The company is trying to attract more British workers as it prepares for potential staff shortages after Brexit and seeks to expand further in the US and internationally. |
| The full story is here: | The full story is here: |
| Back with Italy, and bond yields are continuing to leap higher: | Back with Italy, and bond yields are continuing to leap higher: |
| #Italy this morning. 2y government bond yield at almost 2%. Was -0.19% at the start of the year. Increased a full percentage point in one night. pic.twitter.com/DTrqr1b3U9 | #Italy this morning. 2y government bond yield at almost 2%. Was -0.19% at the start of the year. Increased a full percentage point in one night. pic.twitter.com/DTrqr1b3U9 |
| The unscheduled trading statement from Dixons Carphone shows it now expects profits of around £300m in its next financial year, well below the £387m expected by analysts. | The unscheduled trading statement from Dixons Carphone shows it now expects profits of around £300m in its next financial year, well below the £387m expected by analysts. |
| It forecast the UK electrical market would contract, and new broom chief executive Alex Baldock - eight weeks in the job - seemed to take a swipe at previous management when he said: | It forecast the UK electrical market would contract, and new broom chief executive Alex Baldock - eight weeks in the job - seemed to take a swipe at previous management when he said: |
| We will correct recent underinvestment in both our colleague and customer proposition. In the coming year we expect to make a cost investment of around £30m in these areas across the UK and Ireland, giving our colleagues the right tools and the customer an improved experience. | We will correct recent underinvestment in both our colleague and customer proposition. In the coming year we expect to make a cost investment of around £30m in these areas across the UK and Ireland, giving our colleagues the right tools and the customer an improved experience. |
| It said it expected cost increases in UK electricals, notably the National Living Wage and IT depreciation. | It said it expected cost increases in UK electricals, notably the National Living Wage and IT depreciation. |
| On mobile, Baldock said the company had taken early action with the planned closure of 92 Carphone Warehouse standalone stores this year. | On mobile, Baldock said the company had taken early action with the planned closure of 92 Carphone Warehouse standalone stores this year. |
| Its shares have slumped 27% to 170p on the news. | Its shares have slumped 27% to 170p on the news. |
| Retail analyst Nick Bubb said: | Retail analyst Nick Bubb said: |
| The share price of Dixons Carphone has been recovering strongly since new CEO Alex Baldock took over, on the back of vibes about strong trading ahead of the World Cup. But, out of the blue, the company has come out with a profit warning today! The issue appears to be that although headline of PBT of £382m for y/e April will hit City expectations that will be only down to an odd one-off £25m systems implementation benefit, given gross margin pressures in Q4. And the company has come out with detailed guidance for the year that has just started, y/e April 2019, warning of a fall back to headline PBT of £300m! That is partly because of the impact of one-off items, but also reflects continued problems in the mobile phone business (despite the much-vaunted talks with the networks about better terms) and, amazingly, a £30m hit to “correct recent underinvestment in both our colleague and customer proposition”. After all that, investors may not be in much of a mood to listen to the new CEO’s assertion that “though there’s plenty to fix, it’s all fixable”... | The share price of Dixons Carphone has been recovering strongly since new CEO Alex Baldock took over, on the back of vibes about strong trading ahead of the World Cup. But, out of the blue, the company has come out with a profit warning today! The issue appears to be that although headline of PBT of £382m for y/e April will hit City expectations that will be only down to an odd one-off £25m systems implementation benefit, given gross margin pressures in Q4. And the company has come out with detailed guidance for the year that has just started, y/e April 2019, warning of a fall back to headline PBT of £300m! That is partly because of the impact of one-off items, but also reflects continued problems in the mobile phone business (despite the much-vaunted talks with the networks about better terms) and, amazingly, a £30m hit to “correct recent underinvestment in both our colleague and customer proposition”. After all that, investors may not be in much of a mood to listen to the new CEO’s assertion that “though there’s plenty to fix, it’s all fixable”... |
| Indeed. | Indeed. |
| Italian bond yields have jumped on the political turmoil engulfing the country, with the two year yields rising above 1% for the first time since 2014. | Italian bond yields have jumped on the political turmoil engulfing the country, with the two year yields rising above 1% for the first time since 2014. |
| The euro continues to come under pressure, falling to its lowest level since November 2017 against the dollar. | The euro continues to come under pressure, falling to its lowest level since November 2017 against the dollar. |
| It is down 4% so far this month at $1.159, and is also at a new six and a half month low against the Swiss franc. It has fallen 0.1% against the pound. | It is down 4% so far this month at $1.159, and is also at a new six and a half month low against the Swiss franc. It has fallen 0.1% against the pound. |
| Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. | Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business. |
| It’s been a little while, but the eurozone looks like it could be heading towards another period of turmoil. And it is not Greece this time. | It’s been a little while, but the eurozone looks like it could be heading towards another period of turmoil. And it is not Greece this time. |
| Both Italy and Spain are rattling stock markets, the former following the collapse of its eurosceptic coalition between the Five Star Movement and Lega party and the latter facing a vote of no confidence in the government on Friday. | Both Italy and Spain are rattling stock markets, the former following the collapse of its eurosceptic coalition between the Five Star Movement and Lega party and the latter facing a vote of no confidence in the government on Friday. |
| Italian president Sergio Mattarella has vetoed the proposed anti euro candidate for finance minister, Paolo Savona, and appointed Carlo Cottarelli, a former International Monetary Fund official, as interim prime minister. In some ways the veto on Savona should be good for the euro, but any benefits have been overshadowed by the political turmoil caused and the prospect of new elections later this year. | Italian president Sergio Mattarella has vetoed the proposed anti euro candidate for finance minister, Paolo Savona, and appointed Carlo Cottarelli, a former International Monetary Fund official, as interim prime minister. In some ways the veto on Savona should be good for the euro, but any benefits have been overshadowed by the political turmoil caused and the prospect of new elections later this year. |
| Here is our story on the latest political developments: | Here is our story on the latest political developments: |
| Meanwhile in Spain prime minister Mariano Rajoy is facing the no confidence vote after a Spanish corruption case involving members of the ruling party. | Meanwhile in Spain prime minister Mariano Rajoy is facing the no confidence vote after a Spanish corruption case involving members of the ruling party. |
| Jasper Lawler, head of research at London Capital Group, said: | Jasper Lawler, head of research at London Capital Group, said: |
| The overriding problem for investors is that these are two of the largest, most important economies in the eurozone. Euro traders are aware that the potential fallout from Italy mainly, but also this Spanish headache, dwarfs the fallout which could have been following the Greek debt saga and as a result the euro has fallen heavily out of favour and has continued to decline overnight. With potential elections just around the corner in both Spain and Italy, a summer of volatility now seems almost a given. | The overriding problem for investors is that these are two of the largest, most important economies in the eurozone. Euro traders are aware that the potential fallout from Italy mainly, but also this Spanish headache, dwarfs the fallout which could have been following the Greek debt saga and as a result the euro has fallen heavily out of favour and has continued to decline overnight. With potential elections just around the corner in both Spain and Italy, a summer of volatility now seems almost a given. |
| So with the euro weakened by these new uncertainties, European stock markets are expected to open lower: | So with the euro weakened by these new uncertainties, European stock markets are expected to open lower: |
| European Opening Calls (with FTSE revised):#FTSE 7692 -0.50%#DAX 12811 -0.41%#CAC 5492 -0.31%#MIB 21809 -0.56%#IBEX 9732 -0.33% | European Opening Calls (with FTSE revised):#FTSE 7692 -0.50%#DAX 12811 -0.41%#CAC 5492 -0.31%#MIB 21809 -0.56%#IBEX 9732 -0.33% |
| It’s a fairly quiet day on the economic front but there are a couple of bits of corporate news. Sandwich chain Pret A Manger is being sold for around £1.5bn while Dixons Carphone has issued a profits warning. More to come on this.... | It’s a fairly quiet day on the economic front but there are a couple of bits of corporate news. Sandwich chain Pret A Manger is being sold for around £1.5bn while Dixons Carphone has issued a profits warning. More to come on this.... |