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U.K. Meltdown, Meloni Wins in Italy, Russian Rage - What's Moving Markets

Economy Sep 26, 2022 06:19AM ET
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By Geoffrey Smith 

Investing.com -- The pound hit an all-time low and the rout in U.K. bonds worsened after the new government indicated that it isn't yet done with unfunded tax cuts and energy subsidies. Italy is going to get a right-wing government after a bloc led by Giorgia Meloni's Brothers of Italy party emerged as the winner of national elections. Stocks are set to open lower, with a special spotlight on Amazon and Berkshire Hathaway after the weekend publication of a study on the impact of the new global minimum corporate income tax. Russia's referendums-at-gunpoint in Ukraine are shunned by its neighbors and allies, while its stock market plunges. And crude oil is lower on the prospect of demand destruction as the world economy slows. Here's what you need to know in financial markets on Monday, 26th September. 

1. Sterling, Gilts routed

The pound hit an all-time low against the dollar and slumped against the euro and other currencies, while government bond yields rocketed higher, in a shattering verdict on the new government’s tax cuts and energy subsidy plans.

The pound fell as low as $1.0384 before recovering on speculation that the Bank of England may carry out an emergency rate hike, only days after saying it would wait until November before reacting to the government's moves.

The move sent shockwaves through global bond markets, on concerns that other advanced economies may abandon economic orthodoxy as they struggle with the consequences of this year's surge in energy prices.

The effects of that crisis were also on show in another shockingly bad German business confidence number from Ifo.  

2. Meloni set to form new Italian government

A right-wing coalition under Giorgia Meloni's Brothers of Italy party appears to have won national elections, securing enough seats for majorities in both chambers of parliament.

Italian bonds reacted with a modest selloff, the key 'spread' between the Italian and German 10-year yield widening by only 4 basis points, while the FTSE MIB was the only European stock index to eke out a gain on a morning overshadowed by developments in the U.K.

Concerns at the Brothers of Italy's roots in the country's fascist past have been mitigated – at least in markets – by Meloni's pledge to pursue a responsible fiscal policy, unlocking tens of billions of euros of post-pandemic aid from the EU budget. Meloni has also indicated broad support for the U.S. and EU reaction to Russia’s invasion of Ukraine.

There was a strong protest element to the results, nonetheless: turnout was the lowest ever recorded, while parties that had supported the broad coalition government of Mario Draghi fared particularly badly.

3. Stocks set to open lower; Amazon, Berkshire in focus

U.S. stock markets are set to open at their lowest in nearly two years later, as the wave of risk aversion generated by last week’s Federal Reserve meeting continues to run its course.

By 06:20 ET (10:20 GMT), Dow Jones futures were down 202 points, or 0.7%, while S&P 500 futures were down by a similar amount, and Nasdaq 100 futures were down by a slightly smaller 0.4%, amid concerns that the dollar's strength will eat into the profits and outlooks of multinational companies in the upcoming earnings season.

Over the weekend, a new study showed that the new global minimum tax on corporate profits may hit Amazon (NASDAQ:AMZN), Berkshire Hathaway (NYSE:BRKa), and eBay (NASDAQ:EBAY) hardest. Those stocks may garner some attention in the absence of any scheduled corporate news. In Europe, Unilever (NYSE:UL) signaled CEO Alan Jope will step down next year.

4. Russian unrest spreads, stocks tumble on mobilization fears

Russia's efforts to shore up its faltering campaign in Ukraine suffered a series of blows over the weekend, with protests across an expanded draft of reservists continuing and a wave of international condemnation of the referendums held at gunpoint in Russian-occupied areas of Ukraine.

Serbia, one of Russia's closest and oldest allies, said it would not recognize the referendum results, as did Turkey and Kazakhstan, two other key players in the region.

Additionally, Russian media reported the firebombing of several draft centers, while one military commissioner was shot and critically injured while processing the mobilization of reservists in Ust-Ilimsk, near Lake Baikal.

Kremlin spokesman Dmitry Peskov denied suggestions that the country has taken measures to ban emigration by fighting-age males. Russia’s benchmark stock index fell 10%, meanwhile.

5. Oil stumbles on fears of demand destruction

Crude oil prices fell to a new nine-month low as the shake-out in bond and currency markets cast further doubt over the strength of the global economy and global oil demand.

By 06:30 ET, U.S. crude futures were down 0.4% at $78.44 a barrel, while Brent was down 0.5% at $84.63 a barrel.

Sentiment was hardly helped by signs of further economic stress in China, the world’s largest importer, where the central bank tweaked its reserve requirements to cushion the fall of the yuan, while China Commercial Bank unveiled a new fund to prop up ailing real estate projects.

U.K. Meltdown, Meloni Wins in Italy, Russian Rage - What's Moving Markets
 

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Comments (9)
Maximus Maximus
Maximus Maximus Sep 27, 2022 5:28AM ET
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the right wing tory government(s) are turning the UK into a 3rd world country, and now Italy wants to to follow suit
Matt Kay
Matt Kay Sep 26, 2022 1:48PM ET
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russian maga bots invading other countries. stay vigilant brothers and sisters. fight fascism!
Darryl Allen
Darryl Allen Sep 26, 2022 12:01PM ET
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Make Italy Great Again
Kaushal Shah
Kaushal Shah Sep 26, 2022 11:34AM ET
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one shot 1000 rate hike do it. don't give slow poison to market. this is like slowly killing small investors & enjoy seeing them dying.
Ken Roth
Ken Roth Sep 26, 2022 10:22AM ET
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Take it easy we have currently nothing to fear from Italys Meloni, She needs money and have stated that she will off course follow the Financial and democratic rules laid out by EUto get it.
Stephen Fa
Stephen Fa Sep 26, 2022 9:16AM ET
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Time to visit Venice again and spend some strong USD/EUR.
Brad Albright
Brad Albright Sep 26, 2022 9:16AM ET
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It is nice that the US dollar gives US consumers extra buying power overseas, isn't it?
Bill Powers
Bill Powers Sep 26, 2022 9:16AM ET
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I'm jealous of all the free time you have. Although I would spend it doing something better than living in the comment section on https://investing.com
Nay lin Aung
Nay lin Aung Sep 26, 2022 8:58AM ET
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"referendums-at-gunpoint": am I reading the Pravda ?
Greg Ma
Greg Ma Sep 26, 2022 8:51AM ET
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"referendums-at-gunpoint": am I reading the Pravda ?
Jelly Fish
Jelly Fish Sep 26, 2022 7:47AM ET
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Hopefully Italy’s election will reflect a new wave of populism in western Europe. No more illegal immigrantion, no more wastelful spending on green energy, no more grooming our children. Pro-God, Pro-Italy, Pro-Life, Pro-Freedom!!!!!
Dailand Crude
Dailand Crude Sep 26, 2022 7:47AM ET
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yes but Meloni is a pro-system person... pro-EU, pro bruxelles, pro-NATO, pro EUR... nothing is going to change...
Yellow Owl
Mystic_Owl Sep 26, 2022 7:47AM ET
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Nah, Either you are emotional left populist, you will be branded as radical. Gone are the days when the differences were resolved with dialogue & debates.
Jurgen Daub
Jurgen Daub Sep 26, 2022 7:47AM ET
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pro death
Jurgen Daub
Jurgen Daub Sep 26, 2022 7:47AM ET
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day dreamer, go back to sleep
 
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