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Markets are called lower this morning. This is what's happening today:
Companies in Europe reporting results today: BASF, Vivendi, Georg Fischer, Fresenius SE, Fresenius Medical Care, GKN, Provident Financial, Kerry Group, Aalberts Industries, William Demant, SEB, Mediobanca, Jyske Bank, Pandora, CRH, Croda, Elementis, Whitbread, Redrow, Devro, Teleperformance, Temenos, EDP Renovaveis
Today's news is dominated by the Italian elections. World markets retreated today as Italian officials worked to finalize election results that could lead to a reversal of the previous government's austerity drive. While the final outcome is still uncertain, investors are concerned that "gridlock" in the Italian Senate could undermine the progress Italy has made in overhauling its troubled economy.
Investors in the US succumbed to jitters in the final hour of trading Monday, with the Dow and S&P 500 suffering their biggest one-day decline of the year after a late-day sell off. In a clear sign of unease, Wall Street's so-called fear gauge, the CBOE market volatility index, or VIX, surged 32%.
Even though election results have not been certified in Italy, it is clear that voters have rebuked pro-austerity policies, exposing the country to questions about its commitment to fiscal consolidation. Italy's political system encourages the forming of alliances, and a shaky coalition now seems like the best possible result.
Markets had hoped Italian voters would give Bersani a clear mandate to pursue the reforms started by Mario Monti, possibly including the economics professor's party in a coalition.
The scale of the challenge awaiting the next government should not be underestimated, and Bersani's coalition could face opposition from within its own ranks to more radical structural reforms, even if it prevails in the Senate.
Italy's economy has stagnated for years, and suffered the biggest contraction of any G7 nation in 2012 – it shrank by 2.2%. Last week, the European Commission said it would contract by a further 1.0% this year, double the rate it had previously forecast.
At the same time, Italy has to service debts of two trillion euros, the eurozone's second biggest debt mountain relative to the size of the economy after Greece. That costs some 5% of gross domestic product or about 100 billion euros each year and as the economy shrinks, the government has to retain an ever greater share of national income to pay for it.
Unemployment will rise to 11.6% in 2013, according to the European Commission, and then 12% next year.
Debt Auction – The Italian Treasury sells 8.75 billion euros ($11.4 billion) of six-month bills today, followed by an auction of as much as 6.5 billion euros of five- and 10-year bonds tomorrow.
An Italian government requires a majority in both houses. Current rules make it difficult for a party to win both. In the Chamber of Deputies, the coalition gaining the most votes automatically gets 54 percent of the seats. The Senate is apportioned regionally, diffusing the bonus-premium effect. Bersani took 340 seats in the 630-seat lower house, with 29.6 percent of the vote. His aides claimed victory and said he should get a chance to form a government. Berlusconi, with 29.2 percent, he refused to concede. Monti took 10.6 percent, the Interior Ministry said, with 99.2 percent of polling stations reporting.
Conclusion – The result may lead President Giorgio Napolitano to install an interim government, such as the one headed by Monti, to write a new election law as the prelude to another vote. Bersani signaled he may seek an alliance with Grillo, who has rejected such overtures. No formal steps can be taken until Parliament reconvenes March 15.
For more about the Italian elections or stocks and bonds we follow, contact our offices on 25688688.
Good day and happy trading!
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