The rise in market sentiment driven by the new government formation in Italy was short-lived. Poor news headlines in the Eurozone and the disappointing auction of Italian bonds dampened risk appetite. Wall Street dropped with DJIA and S&P 500 losing -0.61% and -0.96% respectively. In the commodity sector, the front-month contract for WTI crude oil slipped after failing to test 100. The contract ended the day at 98.14, down -0.86%. The equivalent Brent crude contract slumped -1.99% during the day. Gold price also dipped as led by the broad-based decline.
Italy issued 5-year bonds worth of 3B euro at 6.29%, up from 5.32% last month. 10-year bond yields soared +36 bps after the auction result. UniCredit SpA, the largest bank in Italy, recorded a loss of 10.6B euro, compared with consensus of a profit of 7.4B euro. The Bank will now look to raise EUR7.5bn of new capital. Contagion was witnessed in Spain as the country's yields also widened.
In Germany, Chancellor Angela Merkel said at the annual congress of the CDU party that Europe was facing the 'toughest hour since World War II'. Finance Minister Schaeuble talked about Greece. He said, 'we want Greece to stay in, that everybody stays in'. However, 'if a country can't carry the burden or doesn't want to carry the burden, and the Greek people have to carry a heavy load, then we have to respect the country's decision'. It appears that the situation in Greece would not be better under the new government. Conservative party leader Antonis Samaras refused to sign a joint statement which shows support from all the parties for the new government although this was a prerequisite for the EU to EU to release the funding worth of 8 million euro. Samaras insisted that his verbal pledge should be sufficient.
On the macro front, the UK will release inflation data with the headline CPI probably slipping to +5.1% y/y in October from +5.2% a month ago. Core CPI should have eased to +3.2% from +3.1%. Eurozone's ZEW economic sentiment might have slid to -55.3 in November from -51.2 in October. Sentiment indices in Germany are also expected to show further deterioration. In the US, retail sales probably increased +0.3% in October, moderating from +1.1% in September.