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European Central Bank is not yet ready to intervene in Italy

02 June, 2018, 10:50 | Author: Samuel Sharp
  • GETTY•EU PARLIAMENTItaly news Marco Zanni MEP claims euro's days are'finished amid Italy's deep political crisis

ANALYST TAKE: "If a government can be formed that receives the stamp of approval from Mattarella and is therefore seen as not posing a threat to Italy's place in the eurozone, then this will come as a relief to markets in the near-term", said Craig Erlam, senior market analyst at OANDA.

Italy advanced swiftly toward a populist government on a second try Thursday, after the leaders of the anti-establishment 5-Star Movement and the right-wing League announced a compromise deal aimed at overcoming the president's objections.

The Spike in Europe's inflation figures could revive expectations of an eventual rate hike by the European Central Bank if market concerns about politics in Southern Europe diminish further.

Premier-designate Carlo Cottarelli, a former International Monetary Fund official, was expected to submit his list of ministers to President Sergio Mattarella in Rome, two days after an attempt by two populist parties to form a government foundered on the president's rejection of their anti-euro economy minister.

The "call" trade was undertaken on the September bund futures contract Wednesday, and will require enormous haven flows, most likely stemming from Italy abandoning the euro under a populist government, triggering a near-calamitous collapse in the common currency.

U.S. Treasury yields saw their biggest one-day drop in two years and the dollar gained ground against the euro.

Prices for United States government bonds surged as investors shifted money from stocks into lower-risk investments.


Traders are catching their breath after the unprecedented Italian bond slump spilled over into global risk assets.

That has eased fears of fresh Italian elections, a vote some say would effectively be a referendum on Italy's euro membership.

Eurostat, the European Union's statistics agency, said consumer prices were up by an annual rate of 1.9 percent in May, way ahead of April's 1.2 percent. The Kospi in South Korea jumped 0.7 percent to 2,438.96 and shares in Southeast Asia were mixed.

Japan's Nikkei 225 stock index dropped 1.5 percent to 22,018.52. It lost 1.7 percent to $67.04 a barrel on Thursday.

"It comes as no surprise that we are seeing Italian markets suffer heavily, with the FTSE MIB hitting a 10-month low, and the two-year (Italian) bond yield topping two percent for the first time since 2013".

U.S. S&P500 mini futures rose 0.5 percent, but market holidays in the world's two biggest financial centers - London and NY - could make trading slow and illiquid for the day.

The Japanese Yen caused the Topix Index to fall for the seventh straight session, the longest such streak since September 2016. Brent crude, used to price worldwide oils, rose 0.6 percent to $75.80 per barrel in London.

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