ANOTHER VOLATILE DAY ON WORLD MARKETS AMID ITALIAN CRISIS - Italian bond yields shot up to 7.502% yesterday - that is the level at which Portugal and Ireland were forced to seek bail-outs when borrowing costs there and here reached similar levels. This has heightened fears that the debt crisis in Europe is spreading and last evening European stocks closed sharply lower.
Louise Cooper, of BCG Partners in London, predicts another volatile day on world markets today with European shares set to open about 2% lower. She says that Italy had been planning to sell about €5 billion of short-term debt today and the results of that auction - if it goes ahead at all - should set the pace for the rest of the day. Markets will also be impacted if the ECB comes in and stands behind Italy, which it has not done so far in this crisis, she says.
Ms Cooper says that Italy is too big to fail and too big to bail, pointing out that it has the third biggest debt market in the world. She says that even IMF funding for the country would be difficult to obtain as the US is the major contributor to the fund and it simply does not want to hand out money.
She says the Italian problems are huge - the country has been allowed get very uncompetitive, while it is also in desperate need of structural reform. Italian politicians ignored the problems for years and points out that structural reforms takes decades to come to fruition. Describing the situation as ''exceedingly scary'', the analyst says that markets have suffered a complete collapse in confidence of the political class to sort out the euro zone's problems.
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MORNING BUSINESS NEWS - Christies sold two pieces of art on behalf of the National Asset Management Agency in New York last night. An Andy Warhol piece raised $782,500 and a Robert Motherwell sold for $74,500. It Is believed the art belonged to tax consultant and developer Derek Quinlan.
*** Belgian bank KBC has reported an unexpected underlying net loss for the third three months of its financial year, as Greece, Ireland, Bulgaria, Hungary and divestments cost it €1.3 billion. KBC said it had incurred higher impairment charges related to Irish property loans. It said that the economic situation in Ireland had not improved and that austerity measures had an impact on the financial strength of households. It said it expected loan loss provisions of about €200m per quarter in the next couple of quarters.
*** German and French officials have discussed plans for a radical overhaul of the European Union that would involve setting up a more integrated and potentially smaller euro zone. The next thing to do, according to a source quoted by Reuters, said that while any move needs to be made cautiously, Europe needs to make a list of those who do nOt want to be part of the club and those who cannot be part. The change has been discussed on an "intellectual" level but had not moved to operational or technical discussions, the source said.
*** On the currency markets the euro is trading at $1.35 cents and 84.9 pence sterling.
