Wednesday, 9 November 2011

Berlusconi's fall keeps markets up but global liquidity retrenchment coming

Markets mostly enjoyed another positive session on Tuesday. The S&P 500 rose 1.2 percent and the STOXX Europe 600 rose 0.9 percent.

Markets climbed after Italian Prime Minister Silvio Berlusconi said he would resign, raising hopes that a new leader will be able to solve the country’s debt crisis. Berlusconi's resignation offer came after he won a budget vote on Tuesday but failed to secure a majority.

Financial markets could face further stress though. Reuters reports a warning from the new head of the Financial Stability Board:

The new global financial regulatory policeman, Mark Carney, warned on Tuesday the world was "on the cusp of another retrenchment" in liquidity and urged careful management of European bank recapitalization...

But the withdrawal of global liquidity as European banks deleverage needs to be well managed in order to limit the effects on the economy, said Carney. He predicted "at least" a brief recession in the euro area.

Economic reports on Tuesday were mixed.

German exports rose 0.9 percent in September but imports fell 0.8 percent.

In the UK, industrial production was flat in September as manufacturing output rebounded 0.2 percent after falling 0.3 percent in August. However like-for-like retail sales values fell 0.6 percent in October from a year ago. The Royal Institution of Chartered Surveyors reported that the number of houses sold in England and Wales reached an 18-month high in October but prices fell.

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