Forex Market Commentaries - Italian PM Warns Of Protests

Italian Technocrat Fears Uprisings And Protests In Italy

Jan 11 • Market Commentaries • 2597 Views • Comments Off on Italian Technocrat Fears Uprisings And Protests In Italy

Italian Technocrat Fears Uprisings And Protests In Italy Once Austerity Measures Begin To Bite

Unelected technocratic Italian Prime Minister Mario Monti has made a plea for more “help” before convening talks in Berlin with German Chancellor Angela Merkel today, warning that his austerity measures could trigger anti-European protests in Italy without signs of progress.

Monti pushed through incredibly severe austerity budget cuts demanded by the European Union in return for rescue;

I am demanding heavy sacrifices from Italians. I can only do this if concrete advantages become visible. If not a protest against Europe will develop in Italy, including against Germany, which is seen as the ringleader of EU intolerance, and against the European Central Bank. Germany and France can’t solve Europe’s problems alone. We are a strong, a proud country, and basically we have an effective economy. You know, I’ve always worked for an Italy that resembles Germany as much as possible.

International Monetary Fund Managing Director Christine Lagarde will meet with President Nicolas Sarkozy today. The former French finance minister met with German Chancellor Angela Merkel in Berlin yesterday as pressure grows to complete the Greek debt ‘swap’ needed to put a rescue plan in place.

Italian Prime Minister Mario Monti meets with the German leader today, and Sarkozy and Merkel will both travel to Rome on Jan. 20 for negotiations with the Italian government before the next European Union summit in Brussels on Jan. 30.

Banks are hoarding the European Central Bank’s record 489 billion-euro ($625 billion) injection into the banking system, thwarting attempts by policy makers to avert a credit crunch in the region. Almost all of the money loaned to 523 euro-area lenders last month was placed back on deposit at the Frankfurt-based central bank instead of into the financial system, according to estimates by Barclays Capital based on ECB data. Banks will use most of the money from the three-year loans to meet their refinancing needs for this year and next.

Barclays Capital estimates firms used 296 billion euros of the Dec. 21 three-year loans to replace maturing shorter-term ECB borrowings. This left only 193 billion euros of additional money for the financial system. Overnight deposits with the ECB have climbed by 219 billion euros since the loans to a record 482 billion euros, suggesting the central bank funds hasn’t reached customers.

Germany, Europe’s largest economy, grew by 3% last year, as expected – down from 3.7% growth in 2010, the strongest since reunification two decades ago (and compared with a sharp 5.1% contraction in 2009).

Export growth slowed to 8.2% from 13.7% in 2010, private consumption picked up, growing by 1.5%, up from 0.6%, according to the Federal Statistics Office. Consumers went spent more as unemployment fell, with the jobless rate hitting the lowest level in December since the country was reunified. However, the German economy shrank by 0.25% quarter-on-quarter in the final three months of last year.

Europe’s persistent debt crisis kept the single currency and global stocks under pressure on Wednesday, threatening to overshadow a slight improvement in the economic outlook that has driven a solid rally in world equity markets in the first two weeks of the new year.

European shares hit a one-week closing high on Tuesday, whilst U.S. stocks reached a five-month peak, after an upbeat forecast by aluminium company Alcoa about the demand outlook for the metal and amid rising hopes of a policy easing in China. Alcoa traditionally is a prime share for displaying overall sentiment and fundamental good reasoning behind the sentiment.

However, concerns regarding the prospects of Europe extricating itself from its deep-rooted debt problems are set to return to centre stage today with a debt sale from Germany and Italian and Spanish auctions later in the week, this caused Asian shares to retreat from early session highs.

 

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Market Overview
Due to the fears over European funding costs, gold hit a four-week high of $1,646.56 an ounce, before easing slightly to $1,643, investors once again were lured to its safe haven safety.

Brent crude initially slipped below $113 on Wednesday in early trading as the worries over Europe’s debt crisis and expectations of a rise in oil inventories in the United States for the third straight week overshadowed concerns of supply disruption from Iran and Nigeria.

European stocks fluctuated after the biggest gain in three weeks as Germany prepared to sell 4 billion euros of debt. Asian shares rose while U.S. index futures were little changed.

The Stoxx Europe 600 Index rose less than 0.1 percent to 250.89 at 9:30 a.m. in London, after earlier falling 0.3 percent. The gauge has advanced 2.6 percent this year as economic reports around the world added to optimism the global economy can withstand the euro area’s debt crisis. The MSCI Asia Pacific Index added 0.3 percent today, while Standard & Poor’s 500 Index futures gained less than 0.1 percent.

Market snapshot at 10:00 am GMT (UK time)

The Nikkei closed up 0.30%, the Hang Seng closed up 0.78% and the CSI closed down 0.48%. the ASX 200 closed up 0.85%. The Singapore index the STI closed up 1.0% although down 15.40% year on year. With a weather eye on the bond auctions later today and various press conferences to come from European leaders and the IMF European bourses are understandably skittish in the first part of the morning session. The STOXX 50 is up 0.05%, the FTSE is down 0.17%, the CAC is up 0.16% and the DAX is down 0.1%. The Portugal PSI 20 is down 0.73% and down 26.31% year on year. Ice Brent crude has moved up from earlier morning losses and is now priced at $113.56 up 28c a barrel and Comex gold is priced at $1646 up $14:50 an ounce. The SPX equity index future is currently up 0.09% suggesting a flat NY session opening.

Economic calendar data releases that could affect sentiment in the afternoon session

12:00 US – MBA Mortgage Applications W/e 06 Jan
19:00 US – Fed’s Beige Book January

The beige book report is titled ‘Summary of Commentary on Current Economic Conditions by Federal Reserve District’, more commonly known as the Beige Book.

The Beige Book is published in advance of every FOMC meeting and is used to update members of the committee with the latest economic changes. The report allows investors to see what information the FOMC members will be basing their decisions on, the information is unlikely to be more than two weeks old. The Beige Book does not offer insight into the FOMC members’ thoughts on the economy, it simply states facts regarding the economy in various regions of the US. Moreover, the information in the report is not quantitative, it’s anecdotal and descriptive.

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