Forex Market Commentries - Italy's Genie is Out of the Bottle

Italy's Genie Is Out Of The Bottle

Nov 8 • Market Commentaries • 1800 Views • 5 Comments on Italy's Genie Is Out Of The Bottle

The headlines read; the parliament is convening in order to orchestrate a vote of confidence, or to potentially vote on new austerity measures, or to potentially dissolve parliament and create a new ‘unity government’ (an unelected coalition)..but this isn’t Greece this is Italy, largest debtor by measurement of government bonds there is and this debacle comes only a week or two after Greece’s. It’s relatively straight forward to understand why the media en masse in Italy have been burying the reality from their public, Silvio Berlusconi owns or financially influences most of it, but now the misdirection and blatant mistruths the Italian parliament have used versus their populace to suppress the truth has gone viral there’s nothing he (or his ministers) can do to contain the reality, Italy is broke.

The figures are truly staggering, whilst Italy is technically not insolvent moving forward it can’t possibly survive the mountain of debt it’s buried under – €1.6 trillion in government borrowing. It can’t possibly raise the €20 billion per month or re-cycle its old debt or borrow another €200 billion fresh debt in 2012 to simply stand still. The Chamber of Deputies will vote at 3:30 p.m. in Rome on a routine report that will reveal whether Berlusconi retains a majority in the 630-seat house. It’s the first such test since three party members defected to join the opposition and six others publicly called on the premier to quit. Berlusconi will probably face a confidence vote that will decide his fate. That last hour of European trading could see fireworks.

European banks are in the news this morning and the news is not positive. As a portent for trouble to come French bank Societe Generale has this morning revealed figures showing the bank’s profit has fallen by 31% due to a write down with regards to Greek sovereign debt and trading revenue, the write down figure ( in relation to Greece specifically) is not published but it’s a fraction of the total liabilities Soc Gen has it’s head in the guillotine for if Greece and Italy default.

UniCredit SpA, Italy’s biggest bank, will decide this week whether to proceed with its seven billion-euro ($10 billion) equity rights issue sale as Prime Minister Silvio Berlusconi fights to remain in power and the country’s debt crisis worsens. UniCredit is preparing to embark on the biggest Italian stock sale in more than two years to comply with regulators’ deadline to bolster capital by June. Failure could force the lender to seek government aid. UniCredit, has lost about half of its value this year. The bank has a market value of about 15.3 billion euros and trades at 61 percent less than its tangible book value. UniCredit has the biggest capital shortfall among Italy’s lenders, a gap of 7.4 billion euros, the European Banking Authority said last month. Lenders that fail to raise capital from private investors by the June deadline will be forced to ask national government for money.

Lloyds Banking Group Plc has said it may miss financial targets as the bank reported a 21 percent decline in pretax profit. Pretax profit fell to 644 million pounds ($1.03 billion) from 820 million pounds for the second quarter, the lender said in a statement today. The median estimate was 754 million pounds, according to a survey of six analysts conducted by Bloomberg.


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The euro weakened a third day and Treasuries climbed before Italian Prime Minister Silvio Berlusconi faces the budget vote. U.S. stock-index futures fell, while European shares rebounded from a two-day drop. The euro slid 0.3 percent against the dollar at 8:04 a.m. in London, while the Swiss franc depreciated against most of its 16 major peers. Treasury 10-year yields declined four basis points. Standard & Poor’s 500 futures dipped 0.6 percent. The Stoxx Europe 600 Index added 0.2 percent, while Japan’s Nikkei 225 Stock Average sank 1.3 percent after Olympus Corp. admitted that it hid losses from investments.

Market snapshot at 8.40 am GMT (UK time)
In Asian Pacific markets the Nikkei closed down 1.27%, the Hang Seng closed flat and the CSI closed down 0.31%, the ASX 200 closed up 0.48% and the SET is up 1.08%. European bourses are mainly positive this morning; the STOXX is up 1.03%, the UK FTSE is up 0.74%, the CAC is up 0.8% and the DAX is up 0.99%. The MIB is up 1.13%. The SPX equity index future is currently down 0.3% and spot gold is down by $6.70 an ounce.

The dollar and yen advanced as Asian stocks dropped for a second day, increasing demand for safer haven assets. The franc reached its lowest level in almost three weeks against the euro on speculation the Swiss National Bank will once again weaken its currency to support growth. Australia’s dollar fell for a third day against the yen after data showed the nation’s trade surplus narrowed more than economists forecast. The euro lost 0.3 percent to $1.3736 at 8:03 a.m. London time. It was 0.2 percent weaker at 107.27 yen. The dollar was little changed at 78.04 yen. The franc fell 0.2 percent to 1.2429 per euro after falling 1.7 percent yesterday amid speculation the SNB will adjust its cap of 1.20 francs per euro set on Sept. 6. It earlier touched 1.2457, the weakest level since Oct. 19. The Swiss currency dropped 0.3 percent to 90.35 centimes per dollar.

Economic data releases that could affect market sentiment in the afternoon sessions

15:00 UK – NIESR GDP Estimate October

An expanding GDP indicates a growing economy, which is generally beneficial for the financial markets. Growth that is too rapid will promote inflationary worries, however, that may influence the MPC to raise interest rates.

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