Daily Market Reports | Mar 28 2013
By Greg Peel
The Dow closed down 37 points, or 0.3%, while the S&P lost a point to 1562 and the Nasdaq rose 0.1%.
Only an insane person would try to govern Italy, said Pier Luigi Bersani last night.
As we recall, Bersani’s Democratic Party won a majority in the lower house of the Italian parliament in the election a while back, but was unable to form a government given a failure to secure a majority in the upper house. Too much of the vote was distributed among Brillo and Berlusconi, one a comedian and the other a joke. Coalition negotiations have been proceeding ever since.
Bersani refuses to have anything to do with Berlusconi suggesting, quite rightly, that only policy paralysis would ensue. Brillo and his Five-Star Party are dead against austerity, but have seemed Bersani’s only option. That is until last night when Five-Star’s senate whip declared the party would not support a Bersani-led government in a confidence vote.
What a useless bunch. Hung parliaments, confidence votes? Gosh, we in Australia can all thank God we’re…oh never mind.
Bersani is due to report to the Italian president tonight at which point he was supposed to announce his government, but presumably Italy will now go back to the polls. This assumption unsettled markets in Europe last night and led to a 120 point drop in the Dow from the opening bell, but the reality is the world has been expecting another Italian election ever since the first one ended in stalemate. We’ve been here before – the same thing happened in Greece.
Meanwhile, over in Cyprus, the government is rushing in aggressive money transfer controls which will ensure that as of tonight, when Cypriot banks are due to reopen, no more than E3,000 or any foreign currency equivalent can be taken out of the country by an individual, per trip. Credit card transactions will be capped at E5,000. The moves are deemed necessary to head off an expected run on Cypriot banks, and may stay in place for quite some time.
No one is really quite sure what will happen tonight. Will the peasants be revolting? Or will the small depositors shrug off the fuss now their money is protected. One presumes we won’t see pitchfork wielding Russian oligarchs and their supermodel girlfriends staging a Ferrari blockade. We will see pictures on the airwaves, and depending on whether they show calm or panic will determine whether financial markets become nervous about ever present contagion fears. If Italians, Spanish, Portuguese and Irish and witnessing rioting in their living rooms then they may just become nervous, too, and decide the mattress is looking better than the bank, just in case.
While stock markets were a bit jittery last night, the Italian ten-year bond yield rose 22bps to 4.7%. The US equivalent saw a bit of buying, falling 5bps to 1.85%. The euro fell once more, sending the US dollar index up 0.4% to 83.24, while gold added only US$6.20 to US$1606.80/oz.
Wall Street fell on the open, but dip-buyers are ever present, and the indices spent the remainder of the day grafting back. The S&P once again came within a hair’s breadth of hitting the all-time high, only to fade on the death. Boosting confidence at home, as the events in Europe unfold, were speeches from the Fed presidents of Boston, Cleveland, Minneapolis and Chicago last night which all featured a dovish tone, leaning towards maintaining Fed bond purchases (QE3) for a long time rather than a short time.
Don’t fight the Fed.
In the only US economic data release of the session, pending home sales for February showed a 0.4% decline having risen 3.8% in January.
Commodities had a quiet night on the sidelines, with the world keen to see just how the Cypriot saga plays out from tonight ahead of what is for most a long weekend. Orthodox Easter is not until May so the Cypriots should have another window available on Friday. All base metal moves were minimal, while the oils were little changed with Brent at US$109.76/bbl and West Texas at US$96.55/bbl. Spot iron ore rose US30c to US$137.40/t.
After a strong surge yesterday on the local market, which smelt of stock option expiry shenanigans, the SPI Overnight fell 13 points.
So tonight all eyes are on Nicosia, while the US will again revise its December quarter GDP result. It’s end of quarter today for fund managers in Australia and tonight in the US, which means just about anything can happen: window dressing or profit-taking or a battle between both.
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