Does the European debt crisis find a new victim with Italy?
Yields on 10 year Italian bonds rose yesterday to 6.68%, a Euro era high for the country, and precariously close to the 7% which would mean that Italy needs to seek a bail out. This is despite the ECB ramping up its bond buying to €9.52 billion, during the first week of new ECB president Mario Draghi. If Italy is to receive assistance from their Euro Zone neighbours then the latest round of austerity measures, involving pension and tax reforms, will need to be implemented. These reforms are proving difficult to implement especially at a time when the Italian Prime Minister Silvio Berlusconi, is struggling to hold on to power, with a no confidence vote expected later this week.
If Italy does pass the austerity measures then it will look towards the European Financial Stability Fund for assistance. Unfortunately, the current plan to leverage the EFSF to €1 trillion Euros using foreign investments has failed to entice investors, with the bond itself now having to pay record returns. One of the reasons the EFSF is struggling was summed up by the Brazilian president Dilma Rousseff at the recent G20 meeting when she questioned why Brazil should invest in the fund when European nation refuse to.
Looking forward to today’s other UK data, the highlight will be the September industrial production report. Unusually long spells of warm, cold or wet weather have led to noticeable differences between manufacturing and total industrial production; the gap being explained by the output of the mining, utilities and North Sea oil industries. August, for example, saw a -0.3% decline in manufacturing but higher energy output as the UK experienced a dismal month of weather pushed total output up by +0.2%. The general expectation is that a more settled September will have nudged up both measures by +0.1% on the month.
What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.