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Italian concerns hit markets

Major news for digestion this morning was that the Italian Prime Minister had bowed to political and market pressure and confirmed he would resign after implementing financial reforms. Markets initially reacted well, up around 0.5% in early trade although the sentiment was soon to sour. Berlusconi stated that, with no majority government looking feasible, elections would be held in early February, markets seemingly unimpressed with the political uncertainty regarding his successor and even whether he would complete his departure. The yields on Italian 10 year debt continued to rise and surpassed the 7% level by mid morning, symbolic as this was the point at which Ireland, Portugal and Greece were forced to seek help. The scenario was also exacerbated following the raising of margin requirements at the clearing house LCH. Clearnet. This essentially resulted in the debt being more expensive to trade, as such the yields ascended despite further buying by the ECB.

The flight from risk assets continued throughout the day, American indices lower by around 2%, matching the losses seen in Europe. On the FTSE 100, Admiral Group was a standout performer for all the wrong reasons, its stock plummeting 25% in response to a 3Q trading update. Whilst turnover was up 30%, the recent high level of claims has the potential to restrict profit growth this year to 10%, Investec commenting that the announcement was effectively a profit warning.

Smith and Nephew was a notable outperformer with a 1.2% gain to 550p, supported by a reduced price target from Panmure Gordon which suggested the company was still worth 640p per share.

The FTSE 100 ended the day 1.9% lower, a 107 point loss that saw it end the day at 5460. The euro lost nearly 2% against the dollar and commodities slumped.

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