Stock exchange for the past day lost about 1.5%
Concerns over Italy spreading through the markets, causing the most serious pressure on the banking sector. Stock exchange for the past day lost about 1.5%, and the flight from risk continues into Wednesday morning. Political problems of Italy raised questions about the capabilities of the country’s withdrawal from the European Union. This scenario is not so fantastic: the political “black swans” are very common lately, if you remember the coming to power of trump and Breaksit.
Appropriate looks parallel with the Greek crisis, which was not initially taken seriously because of the modest size of the economy (less than 2%), but managed to bring down the Euro by 20% in its acute phase (2011-2012). Within a few years the situation in Greece provoked an existential crisis for the entire Eurozone and undermined the credibility of the commercial and Central banks, reducing the share of euros in reserves and world trade.
Now for the financial markets, it is important that investors are fleeing Italian debt. Implicitly under the sale fall as bonds of Britain, Spain and smaller countries. Instead, the replenished portfolio transactions in Germany, the Netherlands, Belgium, and Finland – countries with strict fiscal discipline. Japan in this context appears again as a safe haven for capital, and the States – no, the yields of their bonds have grown yesterday.
The movement of capital in the direction of reliability creates a very wide trail in the financial markets due to their deep relationships. Escape to the reliability entails financial deleveraging. And here is a very large space for reduction, as this figure was reached historic highs recently. Problems in the debt markets could provoke the turn to reduce the debt burden, threatening to turn into a serious sale. Leverage as a dry powder – can long be stored and accumulated, but the “Italian problem” – a lit match. Whether its time to repay is a matter of discretion of regulators, in particular the ECB.
Do not expect that the European Central Bank from day to day, will deploy its course of tapering QE by 180 degrees. Short-term, this can result in maintaining pressure on the single currency and threatening the spread of traction in the security of other developed markets.
For emerging markets the situation is even more dangerous – there are enough problems. In particular, for Russia, the problem deleveraged concerns not only the demand for stocks but also oil prices that sharply reduced during these periods as it was in 2008, 2012 and 2015.
Yesterday the RTS index lost more than 1 percent, falling for a 5th day and dropped to 3-week lows. USDRUB added 49 cents, after climbing to 62.81 – the highest since may 8. The ruble failed to gain even the retreating Euro. The pair EURRUB increased by 1 cent to 72.41, despite the fact that in the global market we saw the EURUSD fall by 0.7% to 1.1530 – lows from July 2017.