ETX Capital Daily Market Bite, 13th March, 2013: European Markets Soft Post Italy Auction, Euro Data
March 13, 2013 1:11 pm
European stock pared session losses though the FTSE100 in London fell on sliding mining stocks hurt by softer commodity prices. In Europe, Italy’s bond yields rose after a poor bond auction — the 10-year rose over 10 basis points in reaction while the FTSE MIB in Milan underperformed the wider European stock market. The euro also softened after the auction outcome with traders expressing increased worries about the political deadlock in Italy which is expected to be protracted and see the country’s finances decline sharply. Demand was tepid at the auction and Italy paid a higher yield on the three-year bond on offer than a month ago.
Investor sentiment surrounding Italy is extremely fragile and markets are now waiting to hear from Italian politicians when they meet on Friday. New elections are an option. Italy is stuck between a rock and a hard place. Forming a broader coalition appears to be the most market-friendly scenario but even then, the viability of such a coalition is questionable and posses many risks such as if all parties can agree on policies. Evidently, reports suggest they cannot. The country’s President may form an undertaker government for the time being if parties cannot agree but this just leaves a prolonged sense of uncertainty in the market and would mean new elections.
New elections will be the biggest threat to market sentiment as the possibilities of a repeat result [hung parliament/inconclusive] are very high. Furthermore, it is clear Italian people do not want austerity as Berlusconi and Grillo — both on the right gained significant influence in the last election outcome. Leftist parties of Monti and Bersani are again likely to take another lashing in the polls, underpinning the anti-austerity feeling that is gripping the country at present. If new elections are indeed scheduled, it could be some time before the event — in that period, we are set to contend with increased uncertainty which will have an immediate effect on borrowing costs for Italian government bonds.
Also underpinning weakness in Europe today has been, industrial production fell 0.4% in January from December against expectations for a 0.1% decline. But US stock futures ticked higher following the release of strong US retail sales — retail activity was up 1.1% on the month, stronger than forecasts of 0.8%. Household consumption in the US has clearly gained momentum and the report has been welcomed by the market on the whole, confirming that the US economy is on the path of recovery, highlighted by last week’s strong jobs number. European stocks are therefore paring session gains and the US is tipped for a firmer start to business, paving the way for the DJIA to print fresh highs after registering a new record in the previous session. ________________________________________ Ishaq Siddiqi
European stock pared session losses though the FTSE100 in London fell on sliding mining stocks hurt by softer commodity prices. In Europe, Italy’s bond yields rose after a poor bond auction — the 10-year rose over 10 basis points in reaction while the FTSE MIB in Milan underperformed the wider European stock market. The euro also softened after the auction outcome with traders expressing increased worries about the political deadlock in Italy which is expected to be protracted and see the country’s finances decline sharply. Demand was tepid at the auction and Italy paid a higher yield on the three-year bond on offer than a month ago.
Investor sentiment surrounding Italy is extremely fragile and markets are now waiting to hear from Italian politicians when they meet on Friday. New elections are an option. Italy is stuck between a rock and a hard place. Forming a broader coalition appears to be the most market-friendly scenario but even then, the viability of such a coalition is questionable and posses many risks such as if all parties can agree on policies. Evidently, reports suggest they cannot. The country’s President may form an undertaker government for the time being if parties cannot agree but this just leaves a prolonged sense of uncertainty in the market and would mean new elections.
New elections will be the biggest threat to market sentiment as the possibilities of a repeat result [hung parliament/inconclusive] are very high. Furthermore, it is clear Italian people do not want austerity as Berlusconi and Grillo — both on the right gained significant influence in the last election outcome. Leftist parties of Monti and Bersani are again likely to take another lashing in the polls, underpinning the anti-austerity feeling that is gripping the country at present. If new elections are indeed scheduled, it could be some time before the event — in that period, we are set to contend with increased uncertainty which will have an immediate effect on borrowing costs for Italian government bonds.
Also underpinning weakness in Europe today has been, industrial production fell 0.4% in January from December against expectations for a 0.1% decline. But US stock futures ticked higher following the release of strong US retail sales — retail activity was up 1.1% on the month, stronger than forecasts of 0.8%. Household consumption in the US has clearly gained momentum and the report has been welcomed by the market on the whole, confirming that the US economy is on the path of recovery, highlighted by last week’s strong jobs number. European stocks are therefore paring session gains and the US is tipped for a firmer start to business, paving the way for the DJIA to print fresh highs after registering a new record in the previous session.
________________________________________
Ishaq Siddiqi
Market Strategist
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