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Markets bounce back; Italy demands respect after EC budget rejection — business live Markets bounce back; Italy demands respect after EC budget rejection — business live
(34 minutes later)
With the markets so choppy this autumn, investors need to take a few deep breaths, and brace for more storms.
Or, as analysts at Citigroup put it to clients today:
“In stormy seas, cursing the waves won’t bring calm.
We believe investors need to adapt portfolios for both a tighter U.S. monetary policy environment, and material, unpredictable political risks.”
In practice, that means looking at emerging markets, such as in Asia, and healthcare stocks. It also means not fretting too much about America going into recession in 2020, or later....
Marketwatch has more details.
Wall Street is also enjoying a better day.Wall Street is also enjoying a better day.
With two hours trading to go, the Dow is holding onto its gains -- currently up 180 points at 24,646 points (up 0.75%).With two hours trading to go, the Dow is holding onto its gains -- currently up 180 points at 24,646 points (up 0.75%).
Three companies who led yesterday’s selloff are now leading the recovery; Oil producer Chevron (+2.5%), construction machinery giant Caterpillar (+2.2%) and Microsoft (+2.25%).Three companies who led yesterday’s selloff are now leading the recovery; Oil producer Chevron (+2.5%), construction machinery giant Caterpillar (+2.2%) and Microsoft (+2.25%).
Traders even have a special guest - more than a month early!Traders even have a special guest - more than a month early!
Here’s David Madden of CMC Markets on today’s stock market recovery, and the Italian budget row:Here’s David Madden of CMC Markets on today’s stock market recovery, and the Italian budget row:
European stock markets have gained ground today even though the tension between the Italian government and the EU has risen.European stock markets have gained ground today even though the tension between the Italian government and the EU has risen.
The EU announced that Italy will be disciplined for their budget, and this could cause massive instability in the region. If tensions continue to be strained, it might hurt the Italian government bond market, which could weaken the banking system. Brexit is still doing the rounds in the news, but traders are unlikely to take any notice until there are new developments.The EU announced that Italy will be disciplined for their budget, and this could cause massive instability in the region. If tensions continue to be strained, it might hurt the Italian government bond market, which could weaken the banking system. Brexit is still doing the rounds in the news, but traders are unlikely to take any notice until there are new developments.
The autumn of volatility continues.The autumn of volatility continues.
European stock markets have closed higher tonight, recovering Tuesday’s losses, but doing little to help traders’ blood pressure.European stock markets have closed higher tonight, recovering Tuesday’s losses, but doing little to help traders’ blood pressure.
Britain’s’s FTSE 100 has gained 102 points or 1.5% to 7050, while Italy’s FTSE MIB jumped 1.4%.Britain’s’s FTSE 100 has gained 102 points or 1.5% to 7050, while Italy’s FTSE MIB jumped 1.4%.
Trade wars, Brexit and the Italian budget row remain unsolved, of course, but they’re not weighing on stocks quite as heavily.Trade wars, Brexit and the Italian budget row remain unsolved, of course, but they’re not weighing on stocks quite as heavily.
Bart Hordijk, Market Analyst at Monex Europe, suspects the Italian budget row will bubble on into 2019:Bart Hordijk, Market Analyst at Monex Europe, suspects the Italian budget row will bubble on into 2019:
”The fact that there are no easy compromises for both parties involved is for us an indicator that this conflict will continue to simmer in the background for the coming months.””The fact that there are no easy compromises for both parties involved is for us an indicator that this conflict will continue to simmer in the background for the coming months.”
A mass of US economic data has landed on the markets, ahead of tomorrow’s Thanksgiving break.A mass of US economic data has landed on the markets, ahead of tomorrow’s Thanksgiving break.
We’ve just learned that:We’ve just learned that:
US home sales rose slightly in October, by 1.4%. That end a six-month run of declines, but the annual rate (5.22m per year) is still lower than this time last year.US home sales rose slightly in October, by 1.4%. That end a six-month run of declines, but the annual rate (5.22m per year) is still lower than this time last year.
Orders for durable goods sank by 4.4% in October, the biggest drop since July 2017. It was mainly due to weaker demand for aircraft (a volatile factor)Orders for durable goods sank by 4.4% in October, the biggest drop since July 2017. It was mainly due to weaker demand for aircraft (a volatile factor)
The number of Americans signing on for unemployment benefit rose to 224,000 last week, a four-month high (but still low in historical terms)The number of Americans signing on for unemployment benefit rose to 224,000 last week, a four-month high (but still low in historical terms)
US consumer confidence has dropped; the University of Michigan’s morale index fell to 97.5 this month, down from 98.3, and weaker than expected.US consumer confidence has dropped; the University of Michigan’s morale index fell to 97.5 this month, down from 98.3, and weaker than expected.
🇺🇸 (USD) U. of Mich. Sentiment (NOV F), Actual: 97.5 Expected: 98.3 Previous: 98.3 https://t.co/F0epTenDMe🇺🇸 (USD) U. of Mich. Sentiment (NOV F), Actual: 97.5 Expected: 98.3 Previous: 98.3 https://t.co/F0epTenDMe
All in all, a fairly underwhelming picture.All in all, a fairly underwhelming picture.
DING DING! Trading is underway in New York, as traders return to the fray after Tuesday’s turmoil.DING DING! Trading is underway in New York, as traders return to the fray after Tuesday’s turmoil.
And shares are rising in early trading; the Dow has gained 160 points or 0.6% to 24,625 points. That takes a small chunk out of yesterday’s 550-point tumble.And shares are rising in early trading; the Dow has gained 160 points or 0.6% to 24,625 points. That takes a small chunk out of yesterday’s 550-point tumble.
Technology shares are among the risers, with Apple up 1.5%.Technology shares are among the risers, with Apple up 1.5%.
It could be a calmer session, as traders get ready for tomorrow’s Thanksgiving festivities.It could be a calmer session, as traders get ready for tomorrow’s Thanksgiving festivities.
A top bond expert reckons there’s a small chance that Italy ends up defaulting on its debts.A top bond expert reckons there’s a small chance that Italy ends up defaulting on its debts.
PIMCO’s chief investment officer for global fixed income, Andrew Balls (brother of former-politician-and-occasional-dancer Ed) also suggested that Rome could issue a parallel currency, or even return to the lira.PIMCO’s chief investment officer for global fixed income, Andrew Balls (brother of former-politician-and-occasional-dancer Ed) also suggested that Rome could issue a parallel currency, or even return to the lira.
Reuters has more details:Reuters has more details:
“Italian sovereign default is unlikely but it is not a zero probability. The more plausible scenario is a combination of issuing a parallel currency or even redenomination,” Balls said at a conference in London.“Italian sovereign default is unlikely but it is not a zero probability. The more plausible scenario is a combination of issuing a parallel currency or even redenomination,” Balls said at a conference in London.
“California issued a parallel currency in 2008 so if it could happen there it is not obvious it couldn’t happen in Italy.”“California issued a parallel currency in 2008 so if it could happen there it is not obvious it couldn’t happen in Italy.”
Short-term Italian debt is also strengthening, presumably on hopes of an eventual resolution between Italy and Brussels.Short-term Italian debt is also strengthening, presumably on hopes of an eventual resolution between Italy and Brussels.
ITALY'S TWO-YEAR BOND YIELD EXTENDS FALLS, NOW DOWN 21 BPS ON DAY AT 1.18 PCT, SET FOR BIGGEST DAILY DROP SINCE OCT 3ITALY'S TWO-YEAR BOND YIELD EXTENDS FALLS, NOW DOWN 21 BPS ON DAY AT 1.18 PCT, SET FOR BIGGEST DAILY DROP SINCE OCT 3
If Italy refuses to cut its spending plans, it could ultimately be fined 0.5% of its GDP.If Italy refuses to cut its spending plans, it could ultimately be fined 0.5% of its GDP.
That’s the end of a long process, though, as this chart shows:That’s the end of a long process, though, as this chart shows:
EU escalates clash with Italy's populists, who risk budget fines https://t.co/gPlP2fUan7 via @JohnFollain @v_dendrinou #tictocnews pic.twitter.com/WNsaCC3WshEU escalates clash with Italy's populists, who risk budget fines https://t.co/gPlP2fUan7 via @JohnFollain @v_dendrinou #tictocnews pic.twitter.com/WNsaCC3Wsh
Italy’s GDP in 2017 was around €1.7trillion, so a fine could reach almost €8bn.Italy’s GDP in 2017 was around €1.7trillion, so a fine could reach almost €8bn.
Readers may well wonder how that would improve Italy’s fiscal position.Readers may well wonder how that would improve Italy’s fiscal position.
Deputy PM Matteo Salvini has declared he is ready to “confront Juncker, Moscovici or whoever” over Italy’s budget plans.Deputy PM Matteo Salvini has declared he is ready to “confront Juncker, Moscovici or whoever” over Italy’s budget plans.
The leader of the right-wing League party defended the proposals, saying they would deliver growth, and thus eventually cut Italy’s mountain of debt.The leader of the right-wing League party defended the proposals, saying they would deliver growth, and thus eventually cut Italy’s mountain of debt.
Salvini says:Salvini says:
“Over five years the debt increased by €300 billion on the basis of budgets that some applauded. If the country doesn’t grow, then the debt goes up, if it grows, it goes down.”“Over five years the debt increased by €300 billion on the basis of budgets that some applauded. If the country doesn’t grow, then the debt goes up, if it grows, it goes down.”
He also called on Europe to “respect the Italian people”, adding on Twitter: “…since we pay at least 5 billion more than what comes back. Job rights, healthcare and education rights, less taxes and more security: we’re moving forward!”He also called on Europe to “respect the Italian people”, adding on Twitter: “…since we pay at least 5 billion more than what comes back. Job rights, healthcare and education rights, less taxes and more security: we’re moving forward!”
All’#Europa chiedo rispetto per il Popolo Italiano, visto che paghiamo ogni anno almeno 5 miliardi in più di quello che ci torna indietro.Diritto al lavoro, diritto alla salute e allo studio, meno tasse e più sicurezza: noi andiamo avanti!Vi voglio bene Amici. pic.twitter.com/PBtLRK99yGAll’#Europa chiedo rispetto per il Popolo Italiano, visto che paghiamo ogni anno almeno 5 miliardi in più di quello che ci torna indietro.Diritto al lavoro, diritto alla salute e allo studio, meno tasse e più sicurezza: noi andiamo avanti!Vi voglio bene Amici. pic.twitter.com/PBtLRK99yG
Meanwhile, Antonio Tajani, president of the European parliament and vice-president of Forza Italia, the centre-right party led by Silvio Berlusconi, Salvinì’s coalition partner before general elections in March, said he is “very worried” about the commission’s assessment of the budget.Meanwhile, Antonio Tajani, president of the European parliament and vice-president of Forza Italia, the centre-right party led by Silvio Berlusconi, Salvinì’s coalition partner before general elections in March, said he is “very worried” about the commission’s assessment of the budget.
Tajani says:Tajani says:
“In addition to violating the rules, the budget does not stimulate growth or investment. We are isolated, the spread [between German and Italian bonds’] is firmly above 300 points, the stock exchange is at its lowest since 2016, we have already lost €300 billion, and the mistrust among entrepreneurs is growing.”“In addition to violating the rules, the budget does not stimulate growth or investment. We are isolated, the spread [between German and Italian bonds’] is firmly above 300 points, the stock exchange is at its lowest since 2016, we have already lost €300 billion, and the mistrust among entrepreneurs is growing.”
There’s little reaction to the EC’s rejection of Italy’s budget in the markets.There’s little reaction to the EC’s rejection of Italy’s budget in the markets.
Italian bonds are holding onto their earlier gains (driven by hopes of a compromise), meaning 10-year debt is trading at a yield of 3.52% (from 3.6%).Italian bonds are holding onto their earlier gains (driven by hopes of a compromise), meaning 10-year debt is trading at a yield of 3.52% (from 3.6%).
Hinesh Patel, portfolio manager at Quilter Investors, says investors expect a reconciliation:Hinesh Patel, portfolio manager at Quilter Investors, says investors expect a reconciliation:
“In some respects this is a win for the populists, who will use this decision to fuel criticism of the EU policymakers they cast as the enemy of the Italian electorate. But Italy is at risk of divorcing itself from economic realities if it presses ahead despite this ruling from the European Commission.“In some respects this is a win for the populists, who will use this decision to fuel criticism of the EU policymakers they cast as the enemy of the Italian electorate. But Italy is at risk of divorcing itself from economic realities if it presses ahead despite this ruling from the European Commission.
“The immediate reaction from markets suggests that reconciliation is expected. Although Italian bond yields have been increasing for several months, a clear signal that the bond market’s confidence in Italy is fragile. The result is that the government’s ability to borrow diminishes and the credit they can obtain comes at a higher cost. This is a crucial factor when you consider that the bumper budget intended to stimulate the economy will require increased government borrowing.“The immediate reaction from markets suggests that reconciliation is expected. Although Italian bond yields have been increasing for several months, a clear signal that the bond market’s confidence in Italy is fragile. The result is that the government’s ability to borrow diminishes and the credit they can obtain comes at a higher cost. This is a crucial factor when you consider that the bumper budget intended to stimulate the economy will require increased government borrowing.
“Despite the nervousness this stand-off may cause in financial markets, it is worth remembering that the European Commission has these controls and governance capabilities over member states for a reason. At the height of the European sovereign debt crisis 24 countries were under Excessive deficit procedures, a burden which France, for instance, has only just been able to shake off. While it is a surprise that we’ve reached this impasse, the European Commission is ultimately just delivering on its mandate.”“Despite the nervousness this stand-off may cause in financial markets, it is worth remembering that the European Commission has these controls and governance capabilities over member states for a reason. At the height of the European sovereign debt crisis 24 countries were under Excessive deficit procedures, a burden which France, for instance, has only just been able to shake off. While it is a surprise that we’ve reached this impasse, the European Commission is ultimately just delivering on its mandate.”
The head of Italy’s coalition government, prime minister Giuseppe Conte, has hit back.The head of Italy’s coalition government, prime minister Giuseppe Conte, has hit back.
Conte insists that his country’s “excellent” budget should go ahead, and hope to persuade the EC of his case this weekend.Conte insists that his country’s “excellent” budget should go ahead, and hope to persuade the EC of his case this weekend.
Reuters has the details:Reuters has the details:
The Italian government’s 2019 budget is “excellent” and in the interests of both Italy and Europe, Prime Minister Giuseppe Conte said on Wednesday.The Italian government’s 2019 budget is “excellent” and in the interests of both Italy and Europe, Prime Minister Giuseppe Conte said on Wednesday.
Earlier in the day the European Commission took its first step towards disciplining Italy over the budget, setting up a confrontation that could last months and eventually lead to fines.Earlier in the day the European Commission took its first step towards disciplining Italy over the budget, setting up a confrontation that could last months and eventually lead to fines.
Conte reiterated he would hold talks with European Commission President Jean-Claude Juncker on Saturday. “Obviously during the course of the conversation we will finally have the chance to talk in detail and fully explain this budget,” he said.Conte reiterated he would hold talks with European Commission President Jean-Claude Juncker on Saturday. “Obviously during the course of the conversation we will finally have the chance to talk in detail and fully explain this budget,” he said.
Analyst Emanuele Canegrati of City trading firm BP Prime says the EC’s ruling is blow to Italy (although not an unexpected one...)Analyst Emanuele Canegrati of City trading firm BP Prime says the EC’s ruling is blow to Italy (although not an unexpected one...)
@EU_Commission just rejected Italy's 2019 budget law and made the first step to open the procedure for excessive debt. It is the first time in EU history this procedure is opened against a country and according to EU officials it is widely 'justified'. Bad news. @graemewearden@EU_Commission just rejected Italy's 2019 budget law and made the first step to open the procedure for excessive debt. It is the first time in EU history this procedure is opened against a country and according to EU officials it is widely 'justified'. Bad news. @graemewearden
The worst thing to Italy are @VDombrovskis 's words: more austerity has still to come, meaning the country, under the procedure, will have to undertake actions worthing €20B/year to reduce the public debt toward the 60% threshold over the next 5 years. Terrible. @graemeweardenThe worst thing to Italy are @VDombrovskis 's words: more austerity has still to come, meaning the country, under the procedure, will have to undertake actions worthing €20B/year to reduce the public debt toward the 60% threshold over the next 5 years. Terrible. @graemewearden
Danske Bank’s Aila Mihr points out that European ministers will have their say next month:Danske Bank’s Aila Mihr points out that European ministers will have their say next month:
🇮🇹#European #Commission sees particularly serious non-compliance with #EU rules in #Italy's budget plan, which warrants opening of a debt-based Excessive Deficit Procedure. Next step ECOFIN Council decision on 4 Dec https://t.co/2lrhDfa7WV🇮🇹#European #Commission sees particularly serious non-compliance with #EU rules in #Italy's budget plan, which warrants opening of a debt-based Excessive Deficit Procedure. Next step ECOFIN Council decision on 4 Dec https://t.co/2lrhDfa7WV
The FT’s Mehreen Khan reckons the EC pulled its punches today, and any knock-out blow probably won’t come for some months:The FT’s Mehreen Khan reckons the EC pulled its punches today, and any knock-out blow probably won’t come for some months:
🇮🇹 EU Commission with a deliberately muted choice of wording today as it recommends a "warranted" excessive deficit procedure for Italy. Doesn't pack a punch in the way previous letters to Rome have. Today will be the start of a long, steady (and probably quite boring) process🇮🇹 EU Commission with a deliberately muted choice of wording today as it recommends a "warranted" excessive deficit procedure for Italy. Doesn't pack a punch in the way previous letters to Rome have. Today will be the start of a long, steady (and probably quite boring) process
EC Vice-President Valdis Dombrovskis has told reporters in Brussels that the Commission had no choice...EC Vice-President Valdis Dombrovskis has told reporters in Brussels that the Commission had no choice...
“With regret, that today we confirm our assessment that Italy’s draft budget plan is in particularly serious non-compliance with the Council recommendation of 13 July.”“With regret, that today we confirm our assessment that Italy’s draft budget plan is in particularly serious non-compliance with the Council recommendation of 13 July.”
“We conclude that the opening of a procedure for excessive deficit based on the debt is thus warranted.”“We conclude that the opening of a procedure for excessive deficit based on the debt is thus warranted.”
European commissioner Pierre Moscovici says the door is still open for Italy to change it budget plans to meet EC rules....European commissioner Pierre Moscovici says the door is still open for Italy to change it budget plans to meet EC rules....
Our door remains open to dialogue with Italy. As we move closer to opening an Excessive Deficit Procedure, it is even more essential that the Italian authorities engage constructively with the @EU_Commission.Our door remains open to dialogue with Italy. As we move closer to opening an Excessive Deficit Procedure, it is even more essential that the Italian authorities engage constructively with the @EU_Commission.