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Worsening Italian Crisis Batters European Markets

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  • Worsening Italian Crisis Batters European Markets

A worsening political crisis in Italy provoked a second day of selling on European markets, with the euro cut to an 11-month low, stocks punished and short-term borrowing costs surging for the government in Rome.

Investors fear that repeat elections – which now seem inevitable in the euro zone’s third-largest economy – may become a de facto referendum on Italian membership of the currency bloc and the country’s role in the European Union.

Short-dated Italian bond yields — a sensitive gauge of political risk — soared as much as 150 basis points IT2YT=RR to their highest since late 2013 in their biggest move in 26 years [GVD/EUR].

The euro dropped towards $1.15 EUR=EBS for the first time in close to a year, down 0.8 percent on the day. Against the Swiss franc EURCHF=, it fell to 1.15 francs. [/FRX]

Stocks in Milan slid 2.6 percent on the main index .FTMIB after a 2.1 percent fall on Monday. Bank shares .FTIT8300 slumped another 5 percent after losing 4 percent in the previous session, bruised by the sell-off in government bonds, a core part of bank portfolios.

“It is just a slide, and as the slide continues, you ask where is the end,” said Saxo Bank’s head of FX strategy, John Hardy. Global contagion is a risk, he said, with the benchmark U.S. S&P 500 stocks index .SPX also close to breaching some key support levels. [.N]

Hardy recalled a promise made in 2012 by European Central Bank President Mario Draghi to keep the euro intact.

“If this continues for another couple of sessions, I think you will have to see some official (European) response. A ‘whatever it takes’ kind of moment,” he said.

Adding to the uncertainty, Spanish Prime Minister Mariano Rajoy will face a vote of confidence in his leadership on Friday.

Spain’s bond-yield spread with Germany also went to its widest in 11 months at 144 bps ES10YT=RR. Madrid’s IBEX bourse .IBEX was down almost 2.5 percent [.EU].

Asia flinched, too. Japan’s Nikkei .N225 slipped 0.6 percent and Chinese and Hong Kong shares ended 0.6 to 0.7 percent in the red. [.T][.SS] U.S. markets pointed to losses later, with the S&P500 E-Mini futures for the ESc1 down 0.7 percent [.N].

The dollar was up against almost all major currencies except the safe-haven Japanese yen JPY=. [/FRX]

The U.S. currency is heading for its best month in a year and a half .DXY – a move that is hurting many emerging market countries that borrow in dollars. EM stocks hit a five-month low while South Africa’s rand led the currency retreat as it dropped ZAR=D3 1.5 percent. [EMRG/FRX]

“The biggest contributor is fear of a euro zone crisis, and the spillover from that into demand for safe-haven currencies,” said Koon Chow, an FX strategist at UBP.

PLAY IT SAFE

Away from Europe, the focus was on the on-again, off-again U.S.-North Korean summit and the U.S.-China trade relationship.

An aide to North Korean leader Kim Jong Un arrived in Singapore on Monday night, Japanese public broadcaster NHK reported, and the White House said a “pre-advance” team was traveling to the city to meet the North Koreans.

The reports indicate that planning for the summit, initially scheduled for June 12, is moving ahead even though President Donald Trump called it off last week. A day later, Trump said he had reconsidered, and officials from both countries were meeting to work out details.

In another sign that investors were flocking to safer bets, though, the euro hit a 11-month low versus the yen with a 1.5 percent drop to 125.10 yen EURJPY=EBS, its biggest slide in four months.

Elsewhere in bonds, U.S. 10-year Treasury yields fell to six-week lows of 2.883 percent US10YT=RR after a U.S. holiday on Monday. The climb in Italy’s yields – move inversely to price – meant they were above the U.S. equivalent for the first time in over a year.

Analysts are awaiting U.S. inflation data later in the week, which could provide clues to future interest rate moves before the Federal Reserve policy meets next month.

Italian Prime Minister-designate Carlo Cottarelli will see the President Sergio Mattarella at 4:30 p.m. (1430 GMT), the president’s office said in a statement.

Mattarella effectively vetoed a coalition government of the anti-establishment 5-Star Movement and League party at the weekend. He has asked Cottarelli to form a stop-gap government to lead the country to early elections instead. Cottarelli is expected to announce his cabinet after the meeting.

Oil prices remained under pressure from expectations that Saudi Arabia and Russia would pump more crude, even as U.S. oil output rises. [O/R]

U.S. crude futures CLc1 tumbled to six-week lows and looked set for a fifth straight day of declines. The July contract was last down 1.3 percent at $67.02 a barrel.

Brent crude futures LCOc1 edged up 0.5 percent after dropping to $74.49 per barrel on Monday, their lowest in about three weeks. They were last at $75.82.

Spot gold XAU was barely changed at $1,298.01 an ounce.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Forex

Akinwumi Adesina Extols Africans in Diaspora on Cross-Border Remittance

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Akinwunmi Adesina - Investors King

African Development Bank (AfDB) President, Akinwumi Adeshina has extolled the tenacity and impacts of Africans in Diaspora on cross-border remittance.

According to the AfDB President, Africans in the diaspora are the continent’s largest financiers through their yearly remittances.

Speaking at an event organised by the Bank in collaboration with the African Union Commission, Adeshina noted that cross-border remittance into Africa is more than development assistance to the continent. 

Investors King earlier reported that remittance into Nigeria and other countries in the sub-Sahara Africa region hits $53 billion in 2022.

The AfDB President said, “The value of remittances from the African diaspora doubled from $37 billion in 2010 to $87 billion in 2019, reaching $95.6 billion by 2021. Yet official development assistance to Africa in 2021 was $35 billion, or 36% of the remittances from the diaspora”.

Adeshina added that Egypt and Nigeria are among the top-ten remittance recipients globally, with $31.5 billion and $19.2 billion, respectively in 2021. 

While speaking on the advantage of cross-border remittance to the African continent, the AfDB president noted that remittances have helped to meet financial, food, education, and health needs of many Africans, “it as well as serve as countercyclical sources of finance,” he said.

“The African diaspora has become the largest financier in Africa! And it is not debt, it is 100% gifts or grants, a new form of concessional financing that is the key for livelihood and security for millions of Africans” he added.

Similarly, Adeshina further positioned the need to eliminate premium charges on cross-border remittance into Africa. He noted that cross-border into Africa is twice what is it for South Asia.

He concluded that the Africans in diaspora can add more than remittance and investment, noting that they have skills, knowledge and know-how which can be needed for the development of the continent.

“They can help build world-class universities, and they can be mentors for the new generation of Africans,” he said. 

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eNaira

E-Naira Transaction Volume Rises to N5 Billion in November Amid Intensified Campaign

More Nigerians embrace eNaira wallet as CBN takes adoption campaign across the nation

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The Central Bank of Nigeria, (CBN) has disclosed that e-Naira transaction volume rose to a record N5 billion in the month of November following a series of campaigns initiated to encourage adoption.

Investors King had earlier reported how the e-Naira adoption team visited a number of parks in Abuja and the University of Lagos among other locations to drive the adoption of the digital currency. 

Speaking at the Second Edition of the Africa Cashless Payment Conference, CBN’s Director of Information and Technology, Hajiya Rakiya Mohammed noted that transaction on the e-naira platform does not attract any charges. 

She stated that Nigeria’s financial ecosystem is large to accommodate everyone.

Hajia Rakiya added that the e-Naira platform can be operated in any of Nigeria’s major local languages, stating that onboarding onto the e-Naira platform is a simple process. 

She further stressed that the primary goal of the e-naira is to reduce the amount of cash in circulation, thereby downsizing the cost of producing paper currency, increase in revenue and direct disbursement to citizens.

Meanwhile, the e-Naira circulation has reached N401.82 million as more Nigerians embraced the digital currency. 

It could be recalled that on October 25, 2021, CBN launched the e-Naira making Nigeria the first African country to have a digital currency. 

During the unveiling of the e-Naira in Abuja, President Muhammadu Buhari stated that the digital naira would increase remittances, foster cross-border trade, improve financial inclusion and enable the government to make welfare payments more easily.

On his part, the CBN Governor, Godwin Emefiele disclosed that the e-Naira offered Nigerians endless possibilities in using financial services. 

While admonishing more Nigerians to embrace the digital naira, Hajia Rakiya noted that “both banked and unbanked can use it, and it can be done through USSD *997#. We have integrated it with telecoms and NIBBS instant payments plus integration with money transfer operations so you can use e-naira for cross border”.

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Naira

CBN Will Redesign Naira Notes Every Five to Eight Years; Say Emefiele

The central bank will henceforth redesign the nation’s legal tender every five to eight years

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New Naira Notes

Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele has said the bank will henceforth redesign the nation’s legal tender every five to eight years.

The apex bank governor revealed at the unveiling of the new naira notes on Tuesday. 

Godwin Emefiele explained that the naira redesign is in line with global best practice noting that the naira needed to be redesigned and re-issued every five to eight years.

According to the CBN governor, previous administrations lacked the political will to approve the redesign of the naira notes. Stating that it is regrettable that the naira has not been redesigned for the past 19 years. 

“In the past, I have to confess that attempts by the CBN to redesign and re-issue the naira notes have been resisted. It is only President Muhammadu Buhari that has exhibited the courage to do so,” the CBN governor stated. 

Emefiele added that going forward, naira notes will be redesigned at intervals to address some peculiar issues. 

 “After today, the CBN will begin to redesign and reissue the naira every five to eight years,” he said. 

Investors King had earlier reported that President Muhammadu Buhari unveiled the redesigned naira notes at the Federal Executive Council (FEC) meeting today. 

Among those who joined the president with the unveiling include the CBN governor and the EFCC chairman.

Recall, in October, the CBN announced it will redesign the N200, N500 and N1,000 notes in line with its mandate.

Meanwhile, the CBN governor has disclosed that the new naira notes can not be counterfeited because of the features embedded in them. 

Similarly, he added that security agencies would be monitoring people making withdrawals at the counter to sniff out money laundering and unravel illegal usage. 

“The CBN has moved to a cashless economy. We will restrain the volume of cash someone will withdraw over the counter. We will follow up with the person’s data to know the reason for such withdrawal,” he concluded.

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