Euro hits two week high as markets shrug off early losses - as it happened
Italian bank shares volatile, but euro recovers after Matteo Renzi loses Sunday's constitutional referendum
- Monti dei Paschi rescue news may take a few days
- Eurogroup says Italy must fix its 2017 budget
- Euro jumps back over a1.07
- Six reasons why the markets aren't in mayhem
- Will Monti dei Paschi rescue go ahead?
- Italian bonds weaken in early trading
- Italian Referendum Live: Full coverage of Renzi's resignation
5.54pm GMT
The euro has continued to hold firm after recovering from its early falls in the wake of the Italian referendum. Against the dollar, it is currently at $1.076, its highest level since the middle of November. Meanwhile the pound is down around 1% against the single currency, at a1.1812.
Italian bond yields, which initially spiked higher, fell back from earlier highs and are currently up around 6 basis points at 1.97%.
5.25pm GMT
Bank of England governor Mark Carney has called on governments to tackle the problem of inequality around the globe. Katie Allen reports on his speech in Liverpool:
The governor.. has issued a rallying cry to policymakers across advanced economies to tackle the causes of a growing sense of "isolation and detachment" among people who feel left behind by globalisation.
Mark Carney used his first big speech since Donald Trump swept to power in America, to warn that open markets are under threat and that politicians must do more to share out the gains of global trade and the rise of technology.
Related: Mark Carney: we must tackle isolation and detachment caused by globalisation
5.08pm GMT
Despite initial falls after the result of the Italian referendum and the subsequent resignation of prime minister Matteo Renzi, European markets have recovered to end the day higher. Apart that is from Italy itself, which fell back slightly. Earlier we listed six reasons why markets did not drop sharply after the Italian news. The final scores showed:
4.31pm GMT
Italy's bonds are likely to continue to come under pressure despite the - relatively - muted response to the referendum, says Simon MacAdam at Capital Economics:
The rejection of the Italian government's constitutional reforms in Sunday's referendum is not in itself a game-changer for the bond markets of Italy and the rest of the euro-periphery. But it may represent Italy's first step along a path towards the euro-zone's exit door. As a result, we think that the risks for Italian bond yields are skewed to the upside.
The outcome prompted little reaction in financial markets. The euro's fall proved short-lived and the yield of 10-year Italian government bonds rose by just 10bp or so to around 2.0%. This is hardly surprising given that a "No" vote and subsequent resignation by Prime Minister Matteo Renzi had largely been discounted, and that the risk of an imminent Italian exit from the euro-zone remains very small.
4.16pm GMT
The market may not have gone into meltdown after the Italian vote, but there could be some weakness ahead, not least because of the latest European Central Bank meeting later this week. Chris Beauchamp, chief market analyst at IG, said:
They came, they saw and they voted. Italy's decision to reject Renzi's constitutional reforms has not produced the feared apocalypse in global markets. Instead, we have seen European markets trade in positive territory, aside of course from the Italian index, which is still under pressure thanks to its embattled banking sector.
Europe's bounce today definitely has the 'relief rally' feeling to it, so in the face of a rising euro and pre-ECB nerves it will be interesting to see whether gains can be sustained in coming sessions. No-one really expected Brexit or Trump, but here the result was priced in, and as a result we may well have to endure some extended weakness now that the initial excitement is out of the way.
3.32pm GMT
Back with Italy, and Reuters is reporting the fate of struggling Monte dei Paschi may not be known for a few days yet:
Decision On Monte Paschi's Recapitalisation Plan To Be Taken In 3-4 Days After Political Situation Becomes Clearer - RTRS Sources
3.14pm GMT
More on the ISM figures:
strong production and employment the standouts within a robust non-manuf ISM report pic.twitter.com/JqzSVclS7T
3.06pm GMT
The US data is likely to increase speculation of an interest rate rise next week. Dennis de Jong, managing director at UFX.com, said:
An above-expectations uptick in ISM non-manufacturing PMI for November suggests that the US services sector - which accounts for two-thirds of the country's economic activity - has remained a robust proposition in the weeks since Donald Trump's surprise election victory...
The most immediate implication of today's data is its impact on next week's FOMC meeting, where Fed Chair Janet Yellen is expected to finally pull the trigger on the first interest rate hike for a year."
3.04pm GMT
Despite the worries about Europe and the surprise election of Donald Trump as US president, the country's service sector put in a strong performance in November.
The ISM non-manufacturing PMI came in at 57.2, up from 54.8 in October and better than the forecast 55.4. This is the highest figure since October 2015.
US Markit Services PMI Nov F: 54.6 (est 54.7; prev 54.7)
-Markit Composite PMI Nov F: 54.9 (est 54.9; prev 54.9)
2.42pm GMT
Ireland's finance minister, Michael Noonan, has told reporters in Brussels that the European Central Bank won't let Italy's banks failed.
It's always a concern when you hear about banks being weak, and some Italian banks are weak.
But the president of the European Central Bank, Mario Draghi, is Italian and I can't envisage a situation in which the ECB under Mario Draghi will let the Italian banks get into difficulty.
This reliance on poor old Mario has to end sometime https://t.co/hkkFJfrZBm
2.37pm GMT
Over in the US, the post election market rally continues. The Dow Jones Industrial Average has hit a new peak of 19,261 lead by banking stocks and - with the continuing rise in the crude price - energy companies.
The index has slipped back from the record high but is still up around 73 points or 0.3%.
2.22pm GMT
Eurogroup finance ministers are now holding talks about Greece's bailout, and Athens' repeated calls for debt relief.
However, we're not expecting any major breakthrough today, as the latest review of its bailout programme isn't finished yet.
2.06pm GMT
Yikes! Italian banking shares are falling again as the markets watch anxiously for signs that the plan to recapitalise the sector is at risk.
The morning bounce back of Italian bank shares has been reversed: pic.twitter.com/B9E7giMSDd
Italian banks -50% this year, on course for a bigger fall than 2011 at the height of the euro debt crisis. pic.twitter.com/5LqqAlpXLE
1.51pm GMT
The eurogroup is also calling on Germany, the Netherlands and Luxembourg to boost their spending to help Europe's economy grow.
In a statement, they say that the three countries are "over-achieving" their medium-term objectives (ie, running fiscal policy that is too tight).
"The Eurogroup acknowledges that these member states could use their favourable budgetary situation to further strengthen their domestic demand and growth potential, depending on country specific circumstances, while respecting the medium-term objective, the national budgetary prerogatives and national requirements."
1.49pm GMT
Asked if Sunday's vote is a blow to European reform plans, Dijsselbloem says
The referendum took place, the Italian people said no, that's clear.
1.39pm GMT
Economist Megan Greene isn't surprised that Italy can't commit to new budget cuts or privatisations today, as the eurogroup would have liked.
Well yes, it's tough to commit to stupid extra budgetary measures when the govt has no head and is staring down a banking crisis! https://t.co/YotxL4vWuW
1.35pm GMT
Ouch! Jeroen Dijsselbloem singles out Italy as one of eight eurozone members whose 2017 budgets aren't up to scratch.
Spoke to Italian minister Padoan today. Due to political situation impossible for Italy to commit now to take extra budgetary measures
1.25pm GMT
Heads-up. The eurogroup are holding a press conference now, following this morning's talks (they're spoiling us with a SECOND press conference tonight).
Eurogroup president Jeroen Dijsselbloem says ministers have been discussing the draft budget plans for 2017.
1.20pm GMT
Several eurozone finance ministers have played down the dangers posed by Italy, as they gathered in Brussels for today's eurogroup meeting -- where Greece's call for debt relief will be discussed.
Germany's Wolfgang Schiuble said he didn't see a crisis looming, but insisted that Rome must press on with economic reforms.
"There is no reason to talk about a euro crisis"
"I think we have to take this with a dose of serenity.
"The referendum was a question on domestic Italian politics... not about Europe, on European policy, or on the place of Italy in Europe."
12.58pm GMT
No wonder City veterans talk about "playing the Forex":
From a 20-month low to a 2-week high in the same day - the euro is all over the place https://t.co/zWJdXbYBae pic.twitter.com/00jikYWJFd
12.50pm GMT
Writing in the Economist, John Hooper explains why the rescue of Monte dei Paschi bank is now in trouble:
Many observers had expected a No vote, if a narrower one, and markets have already priced in some of the risk. But the defeat worsens the problems of Italy's banking system, and particularly of its shakiest bank, Monte dei Paschi di Siena (MPS), the country's third-largest. The government has solicited institutional investors to recapitalise MPS, but many had made investment conditional on a Yes vote. Some will see the result as proof that Italy is incapable of reform, and may pull back.
Italy could soon face an agonising choice between three options. One would be to nationalise MPS. The second would be to rescue it under new European Union rules that would heap losses on to investors, among them retail investors who hold most of MPS's subordinated debt. Or, faced with the prospect of having to impoverish these voters, the government might simply decide to break the rules, whatever the cost to the credibility of the single currency and its nascent banking union.
My take on a "mortifying" defeat for Matteo #Renzi. https://t.co/ZTNMmzFYyW
12.33pm GMT
Italy's referendum result isn't the trigger for a new eurozone crisis, insists Dutch finance minister Jeroen Dijsselbloem.
"I don't believe it is (the start of a new crisis). There is no reason for that. Political instability makes it more complicated for Italy and the euro zone. But it is a new reality we have to work with."
"Italy is a large economy, one of the largest in Europe, it has strong institutions. You can see that market reaction so far has been moderate."
Oh dear, and it was all going so well. https://t.co/PLu3qZahkN
11.56am GMT
The euro has also rallied against the pound this morning.
It's up around 0.3% today, pulling sterling down to a1.189. It had been as high as a1.20 in overnight trading, as Asian markets reacted to the Italian vote.
11.28am GMT
Boom! The euro just hit its highest level since mid-November, as the single currency shakes off Italy's referendum result.
It just hit $1.07 against the US dollar, or almost 1.5 cents above Sunday night's lows.
11.10am GMT
This Bloomberg screen grab shows how some Italian bank shares were hit this morning:
UniCredit is biggest loser among Italy's banks. It will be difficult to raise a12bn of fresh capital after referendum defeat. pic.twitter.com/RwJO9un4Mv
11.01am GMT
City investors are watching Italy nervously for signs that the programme to strengthen its banks is still on track, or veering off course.
Matteo Renzi's resignation increases the risk that the banks can't be rescued with private sector money, and will need an official aid package.
Italian markets volatile ahead of key decision on banks https://t.co/ZnxHmpWs04
#italy No vote ups chance of Italian bank recapitalisation deemed "systemic" and EU approval of government support https://t.co/lKqE8KTVAs
10.27am GMT
Matteo Renzi can take some credit for calming the markets today, by promising to resign so swiftly last night.
That pledge diluted the uncertainty created by the referendum result, says Carlo Alberto De Casa, chief analyst at ActivTrades:
"Renzi's quick decision to resign was the best thing in this situation for Italy. "The next few hours will be crucial for the country, trying to understand if they will go to vote or if there will be a technocrat government to reform the electoral law.
"Our base scenario is a caretaker government which could be in place before Christmas, and no new elections before 2018.
"If indeed things pan out according to our base scenario, there would be little reason for any broad-based turmoil. It is still utterly unlikely that Italy would leave the EU or the euro.
#ECB lookahead post-#italyreferendum https://t.co/9vFG9qTU59 pic.twitter.com/IVclmD1rOW
9.59am GMT
Italy's finance minister, Pier Carlo Padoan, has pulled out of today's meeting of eurozone finance ministers.
That may mean he'll be involved in the post-Renzi talks today:
Padoan has cancelled a planned trip to Brussels. He could be the next PM
9.48am GMT
Here are a few reasons why the financial markets aren't having an almighty tantrum over Matteo Renzi's resignation.
"The broader financial market impact has, so far, been relatively limited as evident by only modest gains for traditional safe haven currencies like the yen and Swiss franc. Investors are not expecting financial market stability to be disrupted significantly in the near-term.
"The rejection was signalled in advance by the opinion polls - one likely reason for the limited initial financial market reaction.
The euro is now recovering from earlier losses, digesting the #Renzi exit. Markets adopting a 'I've seen worse' attitude. This is so 2016. pic.twitter.com/fPdAA8pWAi
Quick recap #italyref
Yes,Renzi will resign
Yes,several banks are in trouble
No,unlikely there will be an election
No,Italy isn't leaving a
.@PoliticoRyan: Renzi's resignation is no earthquake: Italy will have its 65th government since 1945 - it'll likely manage
Their argument that the Italicum would concentrate too much power in the hands of the PM, and thus heightens the risk of the emergence of a Mussolini type figure, while technically undeniable, is still a smokescreen for the preservation of Machiavellian modus operandi that has seen have 64 governments since World War II - it has therefore precisely nothing to do with either the Brexit referendum or Trump's presidential victory
There must be a radical restructuring plan for ailing banks, some of which could entail a partial "bail in" and liquidation, potentially accompanied by a pre-emptive government recapitalization for an estimated Euros 10-20 billion.
"These restructurings are likely to be followed, or accelerated in parallel, by a long overdue consolidation of the Italian banking system through mergers and acquisitions of small and mid-sized banks.
There are lots of smart (and influential) commentators who saying "no big deal" in Italy. They're wrong:
The next time Italy goes to the polls you have a 3 horse race: 1) M5S 2) PD (in disarray) and 3) centre-right/Lega - they all could win
Unlike in other countries, you have two viable populist (and anti-euro options). The "no big deal" brigade should chew on that for a moment.
9.40am GMT
European Central Bank Governing Council member Ewald Nowotny says we shouldn't panic about Italy's banking sector:
He told a news conference in Vienna:
"These are problems of individual banks. It is not a problem of the entire banking system. It is therefore important to tell the difference and these are in my view problems that can be solved."
9.19am GMT
This chart from Sky News's Ed Conway shows how the euro has recovered from its tumble on Sunday night, when the Italian exit polls showed that Renzi had lost:
The euro is now almost back to where it was before the referendum result emerged. Here it is vs US$: pic.twitter.com/ql6OLala7v
Italian bond yields are up. But no higher than a few days ago. Contrary to some of the over-excited headlines, markets NOT panicking pic.twitter.com/0WpKsNWV1O
9.06am GMT
European economics commissioner Pierre Moscovici has urged investors not to turn Italy's political drama into a crisis.
"It's a solid country with solid authorities and I have complete confidence that Italy can handle this situation.
There is some political instability but the country is extremely stable and it's also a big economy."
Nothing to do with it....It's a domestic constitutional amendment in Italy which has not managed to get through.
8.59am GMT
The cost of insuring Italian debt against default has hit a three-year high today, but it remains well below crisis levels.
Reuters has the details:
Five-year Italian credit default swaps rose nine basis points from Friday's close to 180 bps, their highest since December 2013, according to data from Markit.
Renzi has said he will resign and this may open the door to early elections next year and the possibility of an anti-euro party, the 5-Star Movement, gaining power.
8.46am GMT
Italian banking shares are bouncing back from their early losses.
Even Monte dei Pasche has jumped -- perhaps a sign that its a5bn rescue plan is still on course?
Lol. 30mins into trade, Italian stocks now in the green. FTSE MIB up 0.35%. #italianreferendum @CNBC @CNBCi
8.38am GMT
As feared Italy's main stock market has fallen at the start of trading.
But it's just rebounded, following other European markets higher!
Structural issues in Italy have contributed to a prolonged period of low growth and declining competitiveness in recent decades. Renzi and his government pursued a very ambitious programme of reform aimed at addressing some of these issues-of which the Senate reform that has been voted down in the referendum was a crucial part.
The referendum was therefore seen as a political test for the government-and the No victory was considered a vote of no confidence, putting at risk the survival of the current coalition.
8.28am GMT
The euro is continuing to claw its way back from last night's dive, as investors digest Renzi's defeat.
The euro is now almost back to where it was before the referendum result emerged. Here it is vs US$: pic.twitter.com/ql6OLala7v
A 'No' vote had already been priced in although the scale of the defeat for Matteo Renzi has surprised and leads to the prospect of fresh elections next year.
8.21am GMT
Shares in Monti dei Paschi, Italy's oldest bank, have slumped by 6% in early trading.
Traders are clearly concerned that Renzi's defeat has put the bank's rescue plans in doubt.
Attention now turns to Monte di Paschi, which was due to do a a5bn recap this week.
It will meet the two underwriters this morning to decide whether to go ahead. If they pull out, the expectation is the bank would be nationalised.
Banks in Monte dei Paschi's cash call consortium to meet at around 11:00 GMT following PM Renzi's referendum defeat, RTRS reports. pic.twitter.com/Wa2QqbThgn
8.15am GMT
Shares in Italian banks have fallen sharply at the start of trading in Milan.
The main banking index had slid by 3%, hit by fears that the ongoing attempts to strengthen several lenders could be at risk.
#Italian banks open lower- Banco Pop dn 5%, BPM dn 5%, Intesa San dn 4.5%, Ubi banca dn 3.5%.. remember they're pretty much all penny stocks
The No result in the referendum has undoubtedly made it harder to attract private sector capital to fill Monte dei Paschi's gaping capital hole, and bring it back up to a standard where it could pass under the low bar of the ECB's stress test, which it failed in the summer.
The risk is, that investors lose faith that it will be able to do this, which triggers a run on the bank and a full blown financial crisis that starts in the currency bloc, but could emanate around the world.
8.06am GMT
Italian government bonds have been hit in early trading, following Mattei Renzi's defeat in last night's referendum.
But the losses aren't massive, and we're not looking at a full blown crisis here.
Italy 10Y Bund spread. Could have been much worse. pic.twitter.com/ReGLJtEzRc
7.54am GMT
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
It's going to be a volatile day in the European stock markets, after Italy's prime minister announced his resignation after losing yesterday's referendum on constitutional reforms.
I take full responsibility for the defeat,
Related: Euro falls to 20-month low after Italy government's referendum defeat
Our European opening calls:$FTSE 6695 down 36
$DAX 10449 down 65
$CAC 4498 down 31$IBEX 8485 down 122$MIB 16639 down 448
The proposed reforms, in effect, neutered the senate and would have given much more power to Renzi and future prime ministers.
The prime minister, who started his political career as the mayor of Florence and was the youngest-ever prime minister when he assumed office in 2014, made constitutional reform a central plank of his premiership and argued for months that the changes would make Italy more stable and likely to adopt tough-but-needed economic and labour policies.
Related: Italian PM Matteo Renzi resigns after referendum defeat
Related: Italy referendum: Renzi to resign after defeat as Austria rejects far right - live
"Athens must finally implement the needed reforms."
"If Greece wants to stay in the euro, there is no way around it - in fact completely regardless of the debt level."
Related: Greece must reform or leave eurozone, says German minister
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