Europe.

11th November 2011

Ian Copelin, Investment Director, my wealth, comments “Global equity markets are looking a little more kindly on Europe this morning ahead of an Italian Senate vote on austerity measures and a new unity government takes charge in Greece – the FTSE-100 is currently 5,480 up 0.65%.

Italy’s Senate will vote on debt-reduction measures today in an attempt to shore up investor confidence and pave the way for a new government that may be led by former European Union Competition Commissioner Mario Monti.  The upper house started debating the measures this morning in Rome and should vote this afternoon.  The Chamber of Deputies will then give final approval tomorrow – once approved it is expected that Silvio Berlusconi will resign as Prime Minister.  Berlusconi offered to resign on Tuesday (8 November), once the budget measures were approved by parliament, following a series of defections left him without a majority.  On Wednesday (9 November) Italy’s 10-year bond yield rose to a euro-era high of 7.25% (a level that prompted Greece, Portugal and Ireland to seek bailouts).  This prompted equities to sell-off sharply.  However, sentiment improved yesterday following a successful treasury auction – Italy sold €5 billion of one-year bills, the maximum for the auction, with a yield 6.087%.  Demand was 1.99 times the amount on offer.  Last month’s auction (on 11 October) was 1.88 times covered and the yield was 3.57%.

In Greece, a new unity government led by Lucas Papademos will be sworn this afternoon in Athens with a mandate to implement budget measures and decisions related to bailout on 26 October 2011 that is worth €130 billion.  Elections are expected to take place early next year – potentially on 19 February.

Yesterday, the European Commission cut its euro-region growth forecast for next year by more than half – GDP is now expected to grow by 1.5% this year and 0.5% in 2012 (compared to its earlier estimate of 1.6% growth this year and 1.8% next).”