UK amp EU Market Commentary FTSE loses 0 3 on Italian debt concerns as yields hit euro era highs

The FTSE 100 lost 0.3% in a very choppy trading session as investors reacted to another large rise in Italian bond yields, driving up the cost of borrowing further for the indebted nation and raising fears of widening contagion of the sovereign debt crisis.

It has been a very choppy day with investors reacting to the news flow out of Italy and tremors from the bond markets impacting near term sentiment for stocks.

In a strong sign that investor confidence in Italy’s ability to cut their spiralling deficit and meet austerity plans was waning, the yield on 10 year Italian bonds hit a new euro era high today of 6.69%, fast approaching the 7% level to which triggered bailouts for Greece, Portugal and Ireland.

The political instability in the region Is hardly helping matters also and we have seen investors react instantly to any news, rumour or speculation out of the region on Prime Minister Silvio Berlusconi’s position, which appears to be weakening significantly as allies defect to the opposition.

Markets rally on Berlusconi resignation rumour
The FTSE 100 and stocks around Europe started the day weaker by over 1% but in a stark reflection of the markets confidence in Berlusconi’s ability to lead Italy through its debt crisis, stock indices rallied near 1% by mid day from their earlier lows on rumours that Berlusconi was to resign. In a remarkable few hours of trading, the denial of such rumours by the Italian PM on his own Facebook page and early profit taking by investors drove markets back into negative territory in the final hour of trading.

The mere fact that you have equity markets rallying on speculation that the Italian PM was to resign today shows that investors have little confidence in Berlusconi’s ability to address and contain Italy’s debt problems. All eyes now turn to tomorrows vote in Parliament on the 2010 Budget review, where a failure could lead to a vote of confidence. As such, one can expect tomorrows markets to be equally choppy and reactive to speculation out of Italy.

Correlating strongly with the heightened tensions surrounding the sovereign debt situation in Italy, banks were the main faller in European trade and the key drag on the FTSE 100. RBS and Lloyds Banking Group shares both lost 3% on the day closely followed by a 2.2% fall in Barclays shares.

IAG, the airline Group, shares lost 4.5% and was the worst performing stock on the FTSE 100 today.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.