Financial Markets suffer turbulence following Italy’s Political uncertainty
FTSE 100 7625.08 (-105.20) 1.36% @ 10.32AM
FTAS 4197.47 (-57.73) 1.36% @ 10.33AM
Italy’s Political uncertainty acts to remind us of the dangers of the politics within the Euro zone. (There are many other Geo-Political dangers at work – which could create effect to Global Markets).
At the time of writing at 10.32am the FTSE MIB was trading @ 21260.43 down 3.07%. The Italian banks lead European Stocks lower following the markets “pricing in” a possible referendum in relation to an Italian exit from the EU – or Italexit!
An interview with Yanis Varoufakis earlier on Bloomberg was insightful in that he stated that Italy has a current account surplus, with a strong export book, so Italy should be doing very well – although Italy’s economic decisions are constrained by the EU’s monetary union; which has now developed into a democratic issue. Varoufakis suggested that Italy now needs to develop a “Plan B” – as “Italy is absolutely stagnant”.
A deepening political crisis could lead to debt yields soring – so this issue is not localized, markets globally are concerned about Italy’s position on the spill into the wider EU position – with a flight to US Treasuries developing somewhat. Last week was a “Risk on” view with the UK’s main index breaking 7900. We are now seeing a reversal to “Risk off”.
As long as the political positions remains uncertain – the longer the markets will remain concerned. The danger within Italian Politics was under estimated somewhat, where some commentators now say that markets have “over-priced” the risks to an Italian exit from the EU……
Billionaire investors warns of an “existential crisis” in the region saying that “everything that could go wrong has gone wrong”. In a speech in Paris, he also said “we may be heading for another major financial crisis” – the addiction to austerity by the EU harmed the Euro and was worsening the Euro crisis; a mood caught upon by populist politicians in countries like Italy and Austria.
Soro donated £400,000 to an anti-Brexit group, describing the move by Britain to leave the EU as an “immensely damaging process harmful to both sides”. Soro has described Brexit as a “lose-lose proposition”. He also highlighted the flight of capital from emerging markets and a potential for a surging US Dollar.
In other news, Oil has suffered a 5-day losing streak. NY Crude was trading @ 66.55 down 1.96% at the time of writing at 10.32am.
There’s a report that the British Government may begin to sell parts of its remaining stake in RBS – Royal Bank of Scotland later this week. According to Sky news, the sale is subject to favorable stock market conditions.
What’s coming up?
Wednesday see’s the latest Eurozone Business Climate, Consumer Sentiment and Economic Confidence indices released.
On the same day a second estimate for first quarter US economic growth comes out, which is followed on Thursday with a flash estimate for Eurozone core consumer price inflation as well as the latest unemployment numbers for the bloc.
On Friday markets will be watching the Institute of Supply Managements latest monthly manufacturing PMI data.
Complex markets lie ahead……. so a balance of “quality assets” are essential.