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Markets weaker as concern shifts to Italy

Pre-market futures indicated that Europe would open higher this morning, largely as a result of a deal being struck between the Greek Prime Minister George Papandreou, and his opposition counterpart Antonis Samaras. The former agreed to stand down when a new coalition government is formed with Samaras’ conservative party. Importantly, it was agreed that the coalition will approve the international bailout package prior to the calling of early elections. Aside from this there was little in the way of detail, the market left guessing as to whom the next prime minister would be and when the bailout package would be ratified.

The initial relief was however short-lived, investor focus soon shifting to Italy following comments from an ECB representative over the weekend that the eurozone’s central bank could stop buying Italian bonds if the nation’s government does not deliver promised reforms. The benchmark 10 year debt for the country, which has reached successive highs in recent week, broke a new record today with investors demanding more than 6.6% at one stage in return for their exposure. This came despite the ECB stepping into the market to buy Italian debt, with investors fearing the possible collapse of Berlusconi’s government ahead of a parliamentary budget vote tomorrow.

The FTSE reached its lows of around -1.5% in the early morning, briefly entering positive territory in late afternoon before falling to finish at 5510, 17 points lower than its open and a 0.3% loss. The worst performer on the index was International Consolidated Airlines Group, the parent company of British Airways receiving a downgrade from hold to sell by analysts at Investec, stating deterioration in the sector and global economy, in addition to cost pressures, as factors in their 100p price target. The shares fell -4.5% today to 150p.

Whilst Brent crude performed strongly finishing 2.3% higher, precious metals and safer government bonds (largely those of Germany and the US) all made gains in trades that are typical of risk adverse investors.

This was posted in Bdaily's Members' News section by John Dance .