Italy Replaces Greece
Posted by jackkatz on November 9, 2011
Greece has announced their new interim PM as Filippos Petsalnikos. But headline focus is squarely on Italy as 10 year yields spiked over 7% and a European clearing house increased margin requirements on Italian debt
Greece is rapidly becoming so yesterday as markets turn their anxiety to Italy. We have a strong “Risk off” day as Italian 10 year yields leapt over the 7% threshold hitting 7.4%. This comes despite PM Berlusconi’s pledge to resign after implementing economic reforms. The 7% yield figure is a benchmark for markets as it is the level where Greece, Portugal and Ireland required bailouts. With the shear size of Italy relative to the others, any sort of haircut would have much deeper ramifications to the global investment market. Needless to say currencies are reflecting the mood with the dollar and JPY showing solid gains while the EUR broke through 1.36 with expectations that we could reach the 1.34s by week end. Equities are down across the board of course with the Dow down nearly 300 pts half an hour into the trading sessions.
· Paris clearing house LCH Clearnet has raised the margin call on Italian bonds by 5 percentage points to 11.65% which will lead to a less healthy primary market for Italian debt
· Unlike Greece, Japanese investors have had a healthy appetite for Italian debt but raising the margin call could see many of them unwinding positions.
· Some speculation is that the only folks buying Italian Bonds this morning is the ECB.
· EU inspectors are in Rome to begin a monitoring mission aimed at ensuring promised economic reforms are being carried out. Most of the reforms are in the budget measures to be voted on by parliament to get Berlusconi out the door.
· IMF Chief Lagarde, speaking at a two day visit to China warned that the European debt crisis risked plunging the global economy into a “lost decade”. “There are clearly clouds on the horizon particularly in the advanced economies and particularly in the EU and the Unites States. Our sense is that if we do not act boldly and if we do not act together, the economy around the world runs the risk of downward spiral of uncertainty, financial instability and potential collapse of global demand…we could run the risk of what some commentators are already calling the lost decade.”
· The former governor of the People’s Bank of China Dai Xianglong asid “The Chinese Yuan will be used to settle many trade deals in the coming two or three years: will be used as an investment currency in the coming 5 to 10 years and to become a major reserve currency after three five year periods.” In the mean time please stop complaining about the lack of any decent reserve currencies for your billions. True, it will take a decade or more to build confidence in a currency as a reserve option. Just look at what is happening with the EUR.
· Risks to Japan’s export reliant economy have heightened even after last months monetary easing says BoJ board member Seiji Nakamura. “Many Japanese companies have strived to overcome various supply constraints from the March earthquake and are just about to swing to full production to recover market share lost at home and overseas. Slowing overseas growth and yen rises at such a time would weigh on business sentiment by hurting revenues, mainly for exporters.” More intervention expected?
· GM, a third of which is owned by US taxpayers beat market expectations on profits although they said that they would not break even in the European market. Their underfunded pensions in the US fell by 8.7B. But their shares fell 4.2%.
