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MONTI TO QUIT; BERLUSCONI BACK IN THE ARENA. Italian PM Mario Monti has told the head of state that he has lost support in Parliament and intends to resign. He has been in power 13 months and his unelected emergency term was due to conclude in April. Not coincidentally, earlier the same day, Silvio Berlusconi (76) announced plans to run for power again. Monti will attempt to get the budget passed before resigning “irrevocably”. Berlusconi’s People of Liberty party (part of Monti’s coalition) has indicated that they will support the budget, but markets will be nervous until they see the ink dry, given Berlusconi is campaigning on rolling back austerity measures. Last week, in anticipation of these events, Italian 10 year bond yields rose 10 basis points in three days (currently 4.51 percent). Current polling has Berlusconi’s scandal-damaged party at under 14 percent, making his run a long shot, but an early election certainly provides a potential source of destabilising anti-Europe politicking. Italy ’s fiscal situation could most generously be described as “fragile”. A return of financial volatility in Europe was always a given; this provides another potential catalyst.
OTHER EVENTS AND QUOTES
· Silvio Berlusconi: “I am coming back out of a sense of responsibility.”
· Egyptian President Mohamed Mursi revoked a decree that expanded his powers considerably, after a period of considerable unrest involving eight deaths. The question now is whether the rejuvenated opposition will be content to now let it rest.
· US non-farm payrolls were a little better than expected. The details suggested a more mixed picture. The poor initial read on the University of Michigan consumer confidence was more notable.
· China’s November data dump was better than expected. Industrial output rose 10.1 percent y/y, and retail sales also beat expectations.
GLOBAL MARKETS: Sentiment in the European session was fairly subdued on Friday, with the tone set by the Bundesbank downgrade to their outlook for the German economy. The main European equity indexes ended little changed, while US equities had a slightly better day. In fixed interest space, US 10-year Treasury yields rose 4 basis points on better-than-expected payrolls data, while in Europe , French, Italian and Spanish yields dropped a little. Commodities had a fairly steady day. Grains in the CRB index fell 1.1 percent, as did energy, led by natural gas, but other components were little changed. Dubai crude oil fell a couple of cents; gold ticked up.