Home » Piazza Affari bent by political chaos (-2%). Analysts: “The ECB’s anti-spread shield at risk”

Piazza Affari bent by political chaos (-2%). Analysts: “The ECB’s anti-spread shield at risk”

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Piazza Affari bent by political chaos (-2%).  Analysts: “The ECB’s anti-spread shield at risk”

The Milan Stock Exchange is dealing with political chaos. After a strong start in the red, Piazza Affari increased its losses and one hour after the start it lost more than two percentage points (-2.14%), confirming itself as the worst price list in Europe. Frankfurt is down by a content -0.42% while Paris and London are down by 0.30% and 0.50% respectively.

In Milan, it is mainly the banks that are affected by the sales. Stocks in the sector are suffering from the uncertainty triggered by the Draghi government’s knockout and are losing ground heavily. Intesa Sanpaolo (-4.63%), Unicredit (-5.85%) and Generali (-3%) do very badly. Meanwhile, the spread flies high and exceeds 240 basis points. Yesterday the differential between the ten-year securities of Italy and Germany closed at 220 points.

Analysts speak of political error and see volatility on the Italian market grow. Annalisa Piazza, Fixed-Income Research Analyst at Mfs Investment Management defines yesterday as “a surreal day in which the most populist parties have tried to make tactical moves to regain some of their lost popularity (both the Lega and the Five Star Movement have obtained single-digit scores in the latest polls) ‘. The expert speaks of a “clear political error” that led to Draghi’s resignation.

For Piazza, the current one is «the worst outcome of the crisis that began last week and greater fragmentation is expected. President Mattarella could decide to dissolve Parliament as early as next week, after consulting the presidents of the two chambers. One could try to form an alternative government majority or to appoint Draghi as commissioner. We believe it is unlikely that both scenarios will occur ».

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Risks are also seen on the ECB’s anti-spread instrument. “In the short term, the outcome of political developments could further increase the confusion on the ECB’s anti-fragmentation tool, which is clearly not aimed at reducing political risk – continues the expert -. Meanwhile, the ECB will find itself in a very uncomfortable situation when the risks of a slowdown in Italian growth (together with the intensification of tighter financing conditions) spill over into other Eurozone economies (those with the deepest trade ties will be the first to be affected). The risk of a deterioration in policy transmission will also increase, regardless of the underlying factors.

Just for today, the ECB meeting is scheduled in which Christine Lagarde, head of the Central Institute, will most likely communicate the details on the anti-fragmentation plan.

Meanwhile, the nervousness is skyrocketing. For the expert, the BTP / Bund spread is likely to widen in the coming weeks. “We exclude that the spread reaches the levels seen during the Global Financial Crisis or in 2018-19, when the existential issues of the Eurozone were discussed but it is certain that further uncertainties will be discounted in the prices” she concludes.

“The main consequences that we see at the market level are a rise in the spread due to political uncertainty (even if we expect a mitigating intervention from the ECB and therefore without exceeding the 326 basis points touched by the 2018 crisis), a greater risk of execution of the NRP plans (upon reaching the milestones at the end of 2022, Italy is expected to collect a further 19 billion of EU funds, equal to 1% of GDP, while in 2023, 34 billion or 2% of GDP are expected) also due to the possible paralysis of some reforms (for example the competition law), a risk of delays in some politically sensitive dossiers (single network, Rai Way / Ei Towers) “reason the Equita Sim analysts who then add” on the Pnrr we believe that an extension of the deadlines can be negotiated at EU level and that any new government coalition has an interest in pushing on the projects and reforms of the Recovery Plan ”. Overall, for Equita Sim the context of economic and geopolitical uncertainty is combined with «a phase of political turbulence and a risk of lower credibility at the international level».

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