Europe stronger as Italy fears ease and US housing data beats expectation

<p>European markets closed in positive territory as US housing data helped lift sentiment a day after inconclusive election results in Italy fuelled fears of political […]</p>

European markets closed in positive territory as US housing data helped lift sentiment a day after inconclusive election results in Italy fuelled fears of political instability in the eurozone.

Italian government debt was very much in focus this morning as the Treasury sold €4 billion worth of new 10-year bonds at a yield of 4.83%. The yield was actually up 0.5% and at the highest level since October 2012, however, there was healthy demand for the bonds and the yield did remain below an important psychological level of 5%, well below the 6.6% level which it reached in July last year.

This suggests that the markets don’t view the situation as disastrous quite yet. Although there was a strong knee jerk reaction yesterday, there is a feeling that it may have been a little over done.  If Italy ends up with a government which does not undertake reforms immediately, it would not be too catastrophic. However, it is essential that the new government doesn’t start to unravel reforms which have already gone through, therefore allowing investors to still have confidence that the ECB back stop or OMT programme will remain an option.

As the afternoon progressed, investors took further inspiration from across the pond as Federal Reserve Chairman Ben Bernanke continued with the semi-annual report to Congress on the economy and monetary policy. He repeated his strong support for the Fed’s stimulus efforts, which eased concerns over a potential early retreat from the bond buying programme. Pending home sales in the US also rose 4.5% in January to the highest level since April 2010. This data was particularly well received, given the fall of 1.7% in pending home sales in December.

Here in the UK Petrofac was the biggest fallers, shedding over 6% after disappointing with a 9% rise in revenue and 17% increase in net profit. Additionally their plans to invest $1 billion in capital outlays over the coming five years did little to please the markets.

On the positive side Weir topped the leader board, up over 7% after releasing record profits and margins for last year. Additionally the fact that they expect another strong year in 2013 pleased the markets further.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.