Euro break-up index rises as investors fret about Italy: Sentix

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The new jitters about the stability of the euro sent the currency's value against the dollar to its lowest level in nearly a year.

"As the third biggest economy in the European Union, as a heavily indebted one, and with Euroskeptics seemingly in the ascendancy markets have anxious that the European Union again faces an existential crisis", Greg McKenna, chief market strategist at AxiTrader, said in a note today.

"We may now be in for an extended period of heightened uncertainty ahead of fresh elections" in Italy, Ray Attrill, head of foreign-exchange strategy at National Australia Bank in Sydney, said in a note. The yield on the 10-year Treasury fell to 2.78 per cent, its lowest since early April, from 2.93 per cent.

The strong jump in inflation was mainly due to energy prices, which shot up a dizzying 6.1% in May compared to 2.6% the month before.

According to NPR's Jim Zarroli, "Although the two parties say they are not considering a departure from the eurozone, the mere suggestion of such a move has [also] scared investors". Yields on Italian government bonds soared as their prices declined.

The ECB, however, reminded everyone Tuesday that such help would come with strings attached, like controls on government spending.

"The delicateness and exceptionality of these times is clear to everyone", he said on Tuesday. "Italy knows well that we still have to deal with Europe".

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A law professor who has never before held political office was sworn in as Italy's new Prime Minister on Friday afternoon, bringing to power a populist new government whose senior figures whipped up anti-immigrant and euroskeptic sentiments in their path to office.

Conte was the consensus pick as economic minister of the coalition between the anti-establishment Five Star Movement and the anti-immigration League-a coalition of two populist movements that have stoked fear that Italy could possibly leave the European Union and revert back to a single currency system. The sharp move higher reflects weakening confidence among investors in Italy's government.

That could revive expectations of an eventual rate hike by the European Central Bank if market worries about politics in Southern Europe subside further.

Milan-listed equities snapped a five-day losing streak and bounced 2 percent while short-dated Italian bond yields - a sensitive gauge of political risk - fell more than four-tenths a percent from half-decade highs. Italy's rate reached 1.1% compared to 0.6% in April.

Italian President Sergio Mattarella picked Carlo Cottarelli for prime minister after the anti-establishment 5-Star Movement and right-wing League refused to withdraw an anti-euro candidate as economy minister.

Traders said Chinese stocks were volatile as the long-awaited inclusion of large-cap shares from the country in MSCI's emerging markets index had failed to buoy the market or attract immediate flows of foreign money. Sadly, it is a lesson they seem incapable of learning. "We expect Italy to stay in the euro, with only a small tail risk of an Italexit", or Italian departure from the euro. It added: "Italy does not want to quit the euro". "The winners of a lower euro will mostly be French and German companies, which won't see much of a rise in credit costs". That means any default would hit the governments constituents as hard as foreign investors. It's not clear if that would happen, but if it did, it would have major implications for the European financial system and its economy.

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