Italian shares, Monte Paschi rebound after early losses
Euro down but rebounds from 20-month low near $1.05
Italian shares rose on Monday as investors bet against an immediate snap
election in Italy following Prime Minister Matteo Renzi's resignation after
defeat in a constitutional reform referendum.
Markets had been jolted by the
scale of Renzi's defeat which pointed to further turbulence and political
crisis in the euro zone's heavily indebted third-largest economy and particular
uncertainty was focused on the country's fragile banks.
The euro fell as low as $1.0508 and the Milan bourse shed as much as 2
percent at the opening, while Italian bond yields spiked sharply higher.
But most of these moves quickly reversed. The euro roared back above
$1.06, still down on the day, Italian stocks moved higher, and Germany's DAX
and Europe's FTSEuroFirst index of leading 300 shares both rose 1.5 percent.
"Our base scenario is a caretaker government which could be in place
before Christmas, and no new elections before 2018," Indosuez Wealth
Management chief economist Marie Owens Thomsen said.
"If indeed things pan out according to our base scenario, there
would be little reason for any broad-based turmoil. It is still utterly
unlikely that Italy would leave the EU or the euro," she said.
The referendum outcome was
anticipated but the margin of Renzi's defeat - 59 percent to 41 percent -
caused the initial alarm. Analysts say it could still deal a body blow to a
bloc already reeling under anti-establishment anger that led to Britain's shock
exit in June.
Italian financials rose 0.5 percent having fallen more than 4 percent,
and shares in the world's oldest bank, Monte dei Paschi, were flat on the day
after being suspended at the opening.
Bonds remained under pressure though. Italy's benchmark 10-year bond
yield jumped 11 basis points (bps) to 2.01 percent, widening the premium
investors demand for holding Italian bonds over safer German bonds to 175 bps,
before easing slightly.
The strong link between Italy's banking sector and bond market is a major
concern for investors. Banks have been hit by concerns over their huge exposure
to bad loans built up during years of economic downturn. They also hold large
amounts of Italian government debt.
"Bond market turbulence could have serious implications for the
financial system. Foreign investors may be less willing to underwrite capital
raisings of Italian lenders," JP Morgan Asset Management global market
strategist Maria Paola Toschi said.
Markets had earlier taken some
encouragement when Austria's far-right presidential candidate was soundly
defeated by a pro-European contender, confounding forecasts of a tight
election.
The European Central Bank meets Thursday amid much speculation it will
announce a six-month extension of its asset buying program and widen the type
of bonds it can purchase.
On October 13th of this year the UN General assembly appointed the former
prime minister of Portugal, Antonio Guterres as the next UN Secretary General
replacing Ban Ki Moon officially January 1, 2017. We must take a closer look at
who this man is and what are his goals as head of the UN. Guterres is a
socialist, former prime minister of Portugal who is a driving force behind many
globalist agenda 2031 and flooding the western world with Muslim refugees. He
is not the right man for the job!
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