- Home
- >
- Fundamental Analysis
- >
- What’s happening in Italy and why it’s hurting markets
What's happening in Italy and why it's hurting markets
Rating:
Loading...Italy's rule-defying budget plan is fast-becoming a key concern for global markets, as investors monitor the growing likelihood of a showdown between the EU and Rome's populist government.
Concerns over a confrontation between the anti-establishment government in Italy and the European Commission have intensified in recent weeks, as Rome insists on sticking to its expansive spending ambitions — despite an unprecedented rebuke from the EU.
The European Commission said on Thursday that Italy's 2019 budget draft is in serious breach of EU spending rules. Brussels' most pressing fear is that higher spending in Italy could increase the country's debt pile, which is already the second-largest in the euro zone.
The commission's response prompted yet another sell-off in Italian markets on Friday, adding to the repeated waves of selling in the country since a Euroskeptic government took power in June.
The Italian budget debacle sent Rome's government bond yields to four-year highs on Friday. The 10-year bond yield rose almost 10 basis points to 3.77 percent, while the 30-year bond yield hit a more than four-and-a-half year high of 4.22 percent.
Meanwhile, the yield spread between Italian and German 10-year benchmark bonds rose approximately 340 points on Friday, registering a fresh five-and-a-half year high. Shares in the country's notoriously fragile banking sector also tumbled 5 percent Friday morning.
Italian Stocks and bonds fought back in Friday afternoon trade however, after European Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici, said he wanted to reduce tensions between Brussels and Rome.
After receiving the Commission's latest letter, the Italian government now has until Monday to formally reply.
If, on receiving Italy's response next week, the Commission still believes that the budget is in serious non-compliance, the Brussels-based institution has two weeks to decide what to do next.
Meanwhile, global credit rating agencies including S&P and Moody's are due to carry out a complete review of Italy's rating by the end of October.
A downgrade would put the euro zone's third-largest economy a notch away from "junk" status, resulting in the potential loss of hundreds of billions of funds that go with an investment grade rating.
Graphs: Used with permission of Bloomberg Finance L.P.
Source: CNBC
Trader Aleksandar Kumanov Read more:
If you think, we can improve that section,
please comment. Your oppinion is imortant for us.
