Italian bond yields reached new euro-era record highs this week indicating widespread lack of confidence in Italy’s ability to continue refinancing its massive sovereign debt. At their height, Italian bond yields reached 7.5% on Wednesday before dropping down below the 7% threshold on Thursday. Market economists believe yields above 7% are unsustainable in the current situation. A rise in bond yields results from a fall in bond prices and tends to reflect investor demand for a higher premium needed to compensate for perceived risks. While Italy has the third largest amount of debt in the world, many market observers believe Italy’s debt-to-GDP ratio is manageable. However, political uncertainty has exacerbated the debt issue and contributed to increased investor uncertainty. In an attempt to quell this uncertainty, Italian Prime Minister Silvio Berlusconi has committed to resign after legislation aimed at complying with EU requirements on key reforms is passed. This is expected to happen within days. In the meantime, Italian President Giorgio Napolitano is actively maneuovering to get a government of national unity headed by highly respected ex-EU Commissioner Mario Monti in place as soon as Berlusconi’s resignation is made effective. This, instead of a snap election, would be the scenario most favoured by the bond markets at this stage.
Revised EU Growth Forecasts Released, Outlook Deteriorates
The European Commission published revised growth forecasts for the eurozone revealing a new expectation of 0.5% growth for 2012 down from 1.8%. Furthermore, the Commission expects sovereign debt levels to increase to 90.4% of GDP next year, up from the 88% originally thought in the spring round of forecasts. Olli Rehn, the EU Commissioner for Economic and Financial Affairs, stated that “growth has stalled in Europe and there is a risk of a new recession”, adding that “this is the last wake-up call for governments to react”.
Greece Appoints New Prime Minister
On Wednesday, Greek political leaders appointed a new Prime Minister – Lucas Papademos, former vice-president of the European Central Bank – to lead the new interim government. Papademos plans to concentrate on implementing the new EUR 130 billion bailout package until reelections are held in February. To stem fears of Greece leaving the eurozone, Papademos stated, “I’m convinced that our country’s participation in the euro is a guarantee of financial stability and a contributing factor to economic prosperity.” Greece’s equity markets responded favorably to the news as the Athens General Index rose 1.6% following the announcement.
U.S. Jobless Claims Fall, Slow but Steady Growth Continues
U.S. jobless claims fell by 10,000 to 390,000 reaching the lowest level since April of this year. This marked the second consecutive week of falling initial jobless claims and signalled that the private sector has begun to reduce job cuts, though employment growth remains weak. While these figures beat economists’ forecasts, the decrease had a limited impact on markets given the turmoil in Europe. In another report, the U.S. trade gap narrowed by 4% due to a 1.4% rise in exports driven by industrial supplies and consumer goods and a 0.3% increase in imports for the month of September. While strength in exports should bolster overall economic growth, the economic recovery in the U.S. is still not as dynamic as originally hoped.
db x-trackers Launches 12 New ETCs on the Deutsche Borse
On Monday, db x-trackers launched 12 exchange-traded commodities (ETCs) on the Deutsche Borse. The db Strom ETC allows investors to gain exposure to the performance of German electricity prices for the first time. The db German Electricity EUR Index reference index will be represented via electricity futures contracts, initially with a maturity of one calendar year. Other ETCs launched offer investors exposure to the leveraged and inverse performance for the following commodities: gold, silver, WTI crude oil, Brent crude oil and natural gas. All db ETCs are backed by physically deposited gold bars. Here are the details for the db ETCs:
HSBC Lists Five Emerging Market ETFs on the SIX Swiss Exchange
HSBC listed five ETFs tracking emerging market equity indices on the SIX Swiss Exchange this week. These emerging market ETFs track MSCI indices that cover Russia and the following Asian countries: Korea, Indonesia, Malaysia, and Taiwan. All of these products use physical replication to mimic the performance of their reference indices. Here are the full details for the five ETFs:
ZKB Lists Two Physical Silver ETFs on the SIX Swiss Exchange
ZKB listed two ETFs tracking physical silver on the SIX Swiss Exchange this week. The two ZKB offerings distinguish themselves by being hedged against the Swiss Franc and Euro respectively. Here are the full details for the two ETFs:
