THIS week worries shifted from Greece to Italy as the Italian government struggled to tackle its budget deficit.
Gains were seen across Europe’s equity markets in the early part of the week, despite uncertainty over the future of the Italian government.
Berlusconi failed to secure a majority on Tuesday and pledged he would step down after parliament approves the annual budget, including the necessary austerity measures.
Italy’s 10-year bond yields soared past the critical 7% mark, close to the levels that Greece and Ireland reached just before accepting bailouts.
With the country’s debt levels standing at around €1.9 trillion, the rising yields are making it harder for them to borrow money and tackle their debt pile.
The spike in yields seemed to have been caused by London clearing house LCH Clearnet, which is rumoured to be demanding more margin from investors who buy and sell Italian sovereign debt.
Italy’s borrowing costs eased today as the yield dropped slightly amid rumours that the European Central Bank was buying short-term Italian debt.
Officials from France and Germany are now said to be in discussions over a break-up of the eurozone. Concerns of a possible break-up and its consequences pushed up the cost of borrowing across Europe.
Fears for other countries have intensified as 10-year bond spreads have increased.
The spread between French and German bonds yesterday hit the highest level for almost 20 years, and Belgium and Spain also saw spreads over German bonds reach near 20 year highs.
Looking at economic news, China’s exports slowed in October as a result of weak external demand coming out of Europe, while imports growth remained solid. In the UK the trade deficit for September widened unexpectedly to its largest level since records began in 1998, due to a sharp increase in imports. The European Union has significantly cut its 2012 growth forecast for the eurozone from 1.8% to 0.5%
Turning to stock news, Marks & Spencer saw like for like sales in the 26 weeks to October 1 rise 0.5% from a year earlier, with food sales up 2.1% but general merchandise sales down 1.3%. Underlying profit before tax slipped, but the interim dividend has been maintained at 6.2p.
Vodafone saw profit before tax fall 2.8% in the six months to September 30, on revenue that rose 4.1%.
HSBC saw a huge drop in underlying pre tax profits in the three months to the end of September. The group blamed lower revenues in its investment banking division and a rise in loan impairment charges.
Mining stock Anglo American announced it had sold off a 24.5% stake in its Chilean copper mining and smelting business, with investors reacting positively.
And finally, Experian raised its interim dividend by 14% after a strong financial performance in the first half. Revenues were up 15% on last year with headline pre tax profits up 20% in the six months to the end of September, ahead of market expectations.
:: Andrew Miller is regional office head of Barclays Wealth in Newcastle
