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European markets fall after Italian election deadlock | European markets fall after Italian election deadlock |
(35 minutes later) | |
European markets have opened lower, with the inconclusive election result in Italy raising fears that political deadlock will delay economic reforms. | European markets have opened lower, with the inconclusive election result in Italy raising fears that political deadlock will delay economic reforms. |
Italy's FTSE MIB index fell 4.7%, while London's FTSE 100 shed 1.5% and share markets in Frankfurt and Paris also fell more than 2% at the start. | Italy's FTSE MIB index fell 4.7%, while London's FTSE 100 shed 1.5% and share markets in Frankfurt and Paris also fell more than 2% at the start. |
The yield on Italian government bonds also rose sharply, implying markets are more wary of lending to Italy. | The yield on Italian government bonds also rose sharply, implying markets are more wary of lending to Italy. |
Earlier, stock markets in Asia had closed lower. | Earlier, stock markets in Asia had closed lower. |
Japan's main Nikkei 225 stock index lost 2.2%, Hong Kong's Hang Seng fell 0.8% and Australia's ASX was down 1%. | Japan's main Nikkei 225 stock index lost 2.2%, Hong Kong's Hang Seng fell 0.8% and Australia's ASX was down 1%. |
Oil prices also dropped, hit by worries that uncertainty in the eurozone could hit demand, with Brent crude falling 87 cents to $113.57 a barrel. | Oil prices also dropped, hit by worries that uncertainty in the eurozone could hit demand, with Brent crude falling 87 cents to $113.57 a barrel. |
With all domestic votes counted in Italy's parliamentary election, the centre-left bloc won the lower house by a tiny margin, but did not secure a majority in the Senate. | With all domestic votes counted in Italy's parliamentary election, the centre-left bloc won the lower house by a tiny margin, but did not secure a majority in the Senate. |
Fears are that a split parliament will make it harder for one group to push through their plans to revive the economy, and that may stall Italy's process of cutting its public debt levels. | Fears are that a split parliament will make it harder for one group to push through their plans to revive the economy, and that may stall Italy's process of cutting its public debt levels. |
'Chilling message' | 'Chilling message' |
Banks were the biggest fallers on the stock markets, with shares in major banks across Europe down more than 4%. | Banks were the biggest fallers on the stock markets, with shares in major banks across Europe down more than 4%. |
The yield on Italian 10-year government bonds rose to 4.77% from 4.48%, and the gap between the yield on Italian and German 10-year bonds widened. | The yield on Italian 10-year government bonds rose to 4.77% from 4.48%, and the gap between the yield on Italian and German 10-year bonds widened. |
Former Prime Minister Silvio Berlusconi, who has conceded the lower house to Pier Luigi Bersani's centre-left bloc, played down the significance of the spread, and said he was not worried about market reaction to the vote. | Former Prime Minister Silvio Berlusconi, who has conceded the lower house to Pier Luigi Bersani's centre-left bloc, played down the significance of the spread, and said he was not worried about market reaction to the vote. |
But Spanish Foreign Minister Jose Manuel Garcia-Margallo said there was "extreme concern" over possible movements in bond spreads as a reaction to the results. "This is a jump to nowhere that does not bode well either for Italy or for Europe," he said. | |
Giuseppe Fontana, professor of monetary economics at Leeds University Business School, said Italian voters had sent a "chilling message" to the markets and policy makers. | Giuseppe Fontana, professor of monetary economics at Leeds University Business School, said Italian voters had sent a "chilling message" to the markets and policy makers. |
"It is not difficult to speculate that this morning markets and policy makers are asking the big question - what is the future of the euro area?" he told the BBC. | "It is not difficult to speculate that this morning markets and policy makers are asking the big question - what is the future of the euro area?" he told the BBC. |
"Italy is the third largest economy in the eurozone area and there is a question about is this a way, a democratic way, to tell markets and policy makers to change course about austerity measures and start to stimulate again the economy?" | "Italy is the third largest economy in the eurozone area and there is a question about is this a way, a democratic way, to tell markets and policy makers to change course about austerity measures and start to stimulate again the economy?" |
Georg Grodzki, head of credit research at Legal & General Investment Management, said the Italian result would leave markets guessing for a while. | Georg Grodzki, head of credit research at Legal & General Investment Management, said the Italian result would leave markets guessing for a while. |
"Uncertainty is not good for confidence. It's not bad enough for an immediate abrupt sell-off but it could well build over the next few months into some crisis," he said. | "Uncertainty is not good for confidence. It's not bad enough for an immediate abrupt sell-off but it could well build over the next few months into some crisis," he said. |
Civil unrest 'likely' | Civil unrest 'likely' |
With political instability likely to continue at least in the near term, Angus Campbell from Capital Spreads said: "The uncertainty that this causes is enough to make anyone nervous and we are likely to see an interim administration for a number of months before fresh elections, unless a working coalition can be formed." | With political instability likely to continue at least in the near term, Angus Campbell from Capital Spreads said: "The uncertainty that this causes is enough to make anyone nervous and we are likely to see an interim administration for a number of months before fresh elections, unless a working coalition can be formed." |
For more than a year Italy was led by technocrat Mario Monti, appointed after Mr Berlusconi's resignation in November 2011 amid an acute debt crisis. | For more than a year Italy was led by technocrat Mario Monti, appointed after Mr Berlusconi's resignation in November 2011 amid an acute debt crisis. |
He was tasked with reforming the economy, and introduced unpopular economic austerity measures, implementing spending cuts and tax rises. | He was tasked with reforming the economy, and introduced unpopular economic austerity measures, implementing spending cuts and tax rises. |
Mr Monti resigned in December after Mr Berlusconi's conservative party withdrew its support from his government. Although he ran in the latest election, his bloc won only 10% of the vote, with the majority of voters rejecting austerity. | Mr Monti resigned in December after Mr Berlusconi's conservative party withdrew its support from his government. Although he ran in the latest election, his bloc won only 10% of the vote, with the majority of voters rejecting austerity. |
Ishaq Siddiqi, market strategist at ETX Capital, warned of future turmoil in Italy. | Ishaq Siddiqi, market strategist at ETX Capital, warned of future turmoil in Italy. |
"What is more worrying for investors is that the political deadlock in Italy would suggest that even if we do see a market-friendly scenario materialise with a reform-minded government taking control, the fact that Berlusconi managed to gain such an influence with his anti-austerity campaign means that we are likely to see a rise in civil unrest in Italy." | "What is more worrying for investors is that the political deadlock in Italy would suggest that even if we do see a market-friendly scenario materialise with a reform-minded government taking control, the fact that Berlusconi managed to gain such an influence with his anti-austerity campaign means that we are likely to see a rise in civil unrest in Italy." |
Investors are now looking towards a testimony later on Tuesday from US Federal Reserve chairman Ben Bernanke. | Investors are now looking towards a testimony later on Tuesday from US Federal Reserve chairman Ben Bernanke. |
Global markets were shaken last week by an indication from the Fed that it might scale back its strong monetary stimulus sooner than expected. | Global markets were shaken last week by an indication from the Fed that it might scale back its strong monetary stimulus sooner than expected. |