- The political outlook in Italy remains uncertain. Bersani insists that he will form a minority government but has given no explanation how.
- The US equity markets closed on a positive note on Friday. Asian equity markets (apart from Japan) are in the red this morning, on the back of China and the uncertain political situation in Italy. Markets overnight
Italian politics are not for the faint-hearted. In an interview on Sunday, the Democratic party leader Pier Luigi Bersani continued to insist that he would form a government on his own without seeking support from either of his main rivals Silvio Berlusconi or Beppe Grillo. However, Bersani has not explained how he will win a confidence vote in the Senate where he does not hold a majority. Earlier on Sunday, one of Bersani’s top aides stated that Italy is moving closer to a new election given the deadlock in the Senate. Finally, the Italian president Giorgio Napolitano said on Saturday that all parties should put the public interest and the country’s international reputation first in order to reach an agreement, but this seems very difficult given the various statements from Italian politicians.
The situation in Italy is likely to be high on the agenda when the finance ministers from the Eurogroup meet today. Cyprus is also expected to be listed - the country's new president, Nicos Anastasiades, has to revive talks about a debt package but EU Commissioner Olli Rehn has stated that a solution is needed for all EU countries.
Asian stocks (apart from Japan) are declining this morning as China is introducing a new regulation to curb house prices (higher down payments and higher rates for buying second homes).
US equity markets closed on a positive note on Friday. The S&P 500 closed up 0.2%, given the focus on better US economic data and ignoring the uncertainty in Europe and fiscal outlook in the US. The deadlock on the fiscal outlook continues as House Speaker Boehner (R) said there was no progress on the automatic spending cuts after a meeting with President Obama. The US bond market on the other hand, is ‘worried’ and US Treasury yields continued to decline on Friday and 10Y US Treasury yields fell below 1.85% on Friday declining by 3bp.
In the FX markets, focus is on the yen. The currency is stronger against both the dollar and euro this morning, due in part to the situation in Italy but also as China is trying to cool down the housing market and despite promises from the new BoJ governor. The euro has weakened modestly against the dollar since Friday morning and is testing the 1.30 level this morning.
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