Markets mount over Monti, but not for long

Markets around the world reacted positively to the appointment of ex-banker Mario Monti as the new Italian Prime Minister.

European markets were up an average of 0.5% in the morning, but quickly fell back into the red as the day lingered on.  ­Russian bourses the RTS and MICEX followed the European trend.

Banks felt the most thrilling rollercoaster ride with average stocks rising and falling by over 2%. The reason behind the market plunge later in the day may be the sale of 3-billion euro worth of five-year bonds by Italy with a record yield of 6.29%. Although the interest is less than the 7% reached last weekend it is the highest yield Italian bonds have had at auction since 1997. This casts doubts on whether Italy would be able to repay its debt obligations with such a high interest rate.

Mark Rubenstein, the Director of the Analytical Department of the Russian Metropol investment company, believes markets will be on the rise in the long run as Monti delivers his deficit reduction plans and the US releases sales and industrial production data. The sovereign debt crisis contagion risk has significantly fallen after the government changes in Italy and Greece. 

Valery Dmitriyev, an analyst from BKS-Express, confirms the Russian markets are following the European trend selling off euros, commodity currencies and oil futures. He also says the MICEX index may end up as high as 1850 points or as low as 585 points by next year.

Markets had been reacting positively to the resignation of Silvio Berlusconi and the approval of an austerity package by the Italian Parliament. But investors are still irked by the high percentage yield on government bonds believing Italy may not be able to repay the debt even five years on.

Leave a comment