The prospect of new elections in Italy as early as July sent shivers around European financial markets yesterday after a sell-off in Italian bonds sent yields to their highest level for years.
Ten-year bonds were hammered with yields spiking above 3 per cent, trading at their widest gap to German bonds in over four years.
These are big swings. Yields move inversely to a bond’s price so the higher yields reflect how nervous investors are about lending to Italy’s government, whose debt is about 130 per cent of GDP. Higher yields means the cost of borrowing for Italy’s government becomes more expensive.
Maggie Pagano says the prospect of new elections in Italy as early as July sent shivers around European financial markets yesterday
The bond sell-off hit Italian banks the hardest, since they are exposed to government debt. There was blood throughout the equity market with Italy’s benchmark index, the FTSE MIB, down at its lowest for over a year. The euro was weaker too.
Investors fear the two biggest political parties, the Five Star Movement and League, will turn a snap election into a referendum about Italy’s place in Europe, leading to a bigger combined majority for the anti-establishment parties.
The irony of the impasse, caused by President Sergio Mattarella blocking them from taking power by vetoing their choice of a eurosceptic economics minister, is not lost. Indeed, Mattarella’s decision to veto their candidate, Paolo Savona, looks set to backfire spectacularly, as it can only harden support for Five Star and League.
What’s also ironic is that Savona might have been the cleverer compromise candidate, since the former academic and industry minister has never demanded Italy should leave the euro but that it should not be ruled out. With some justification, Five Star and League can now claim the president has carried out what amounts to a soft coup d’etat on behalf of the Brussels elite.
Instead, there is more uncertainty, not less. Traders predict a ‘big unwinding’ for Italian bonds while the ratings agencies are raising alarm bells over debt levels. The worry is whether the latest dumping of Italian bonds is an Italian problem, or one that spills over into the eurozone.
Pagano says irony of the impasse, caused by President Sergio Mattarella blocking the Five Star Movement and League from ‘taking power by vetoing their choice of a eurosceptic economics minister, is not lost’
Italy is not the only country with problems. In Spain, Mariano Rajoy faces a no-confidence vote on Friday after members of his party were convicted of corruption.
This could lead to Rajoy’s minority centre-right party being ousted, and replaced by the Socialist party. Spanish stocks are also falling and bond yields are up. Yet there is not a peep of concern from Europe’s leaders. You would almost think they are willing the EU to implode. Emmanuel Macron talks about more Europe not less. Angela Merkel stays shtum while Jean-Claude Juncker has, rather late in the day, said that ‘Italy deserves respect’.
They are behaving with breathtaking arrogance and should start listening, pronto.
Like a chef moving into a new kitchen, Dixons Carphone’s new boss, Alex Baldock, is chucking out everything but the sink. He is closing shops, sharpening up electrical goods, pruning costs and hopes to improve relations with mobile operators which supply the chain with phones.
It can’t have been fun delivering a profits warning with his first trading figures, or to see shares plunge. But he is being bold by cutting flab, and admitting that changing consumer phone habits are hurting sales.
Maggie says ‘like a chef moving into a new kitchen, Dixons Carphone’s new boss, Alex Baldock, is chucking out everything but the sink’
It’s been obvious for some time that even the trendiest iPhone users, who not so long ago queued all night for the latest model, are holding on to older phones rather than upgrading them.
Baldock claims the problems are fixable, but some serious challenges, such as stronger competition, may be beyond his control. Wielding the knife will not halt the chill wind blowing through the high street.
Why hasn’t Steve Clarke, chief executive of WH Smith, hit back at criticism that the chain is rated the worst UK retailer? It was horribly close-to-the-bone stuff – customers say shops are out-of-date, products are expensive and staff are rude. Surely Clarke should respond, saying that he will listen to the criticism and, if necessary, help staff with customer courses?
Not a word. Clarke has admitted to being ‘publicity phobic’, and only gives interviews with results. He should reconsider. By saying nothing, he hurts morale further. Confidence flows from the top down.