In the late 19th and early 20th century America saw emergence of Mafia in cities likes New York and other metropolitan due to Italian immigrations. (Italian mafia is also known as Sicilian mafia).Last week something similar happened in the global market, the Italian government released data for GDP, which declined by 0.2 percent in April-June quarter, sending negative sentiment across the financial world. Italy slipped into recession for the third time since 2008.
Italian mafia is termed as “Cosa Nostra” (“our thing”). Thanks to globalisation, this poor GDP data from Italy can’t be termed Cosa Nostra for Italians as their problem is gong to be our problem.
Not only Italy but trade sanctions against Russia, poor factory orders from Germany, fresh statement from incoming European President Jean-Claude Juncker against Grecce debt write-off, French President Francois Hollande’s appeal to ECB on deflationary risk, Portugal’s $6.6 bln rescue plan for its troubled bank Banco Espirito Santo and ECB’s concern on euro zone recovery due to heightened Ukraine crisis, and no change in interest rate played major role in the financial market.
All the above mentioned events pushed U.S. treasuries price up (so, the yields fell). The safe haven investment demand was visible in Germany too, as investors clamoured for safe haven, sending German’s 10yr bunds yield to hit all-times lows.
On Friday, U.S. 10-year notes were down 1/32, yielding 2.43 pct, earlier in the day it fell to 2.35 pct meanwhile, 30-year bonds were unchanged to yield 3.24 pct, it also dipped a low of 3.18 pct during the trading hours.
There were some encouraging signs from U.S. economy, which helped the stock market. Weekly jobless claim fell, Purchasing Manager Index (PMI) for services were good, factory orders rose and Labor Department reported quite a pleasing data on labor productivity in second quarter which boosted investors confidence.
For the week, the Dow rose 0.4 pct, the S&P 500 gained 0.3 pct and the Nasdaq was up 0.4 pct.
The U.S. dollar was up for most of the week but lost all its gain and fell to one week low against all major currencies as escalated geopolitical tension laid down perfect opportunity for profit booking. The dollar was down 0.17 pct at 81.389 as of 4:30 pm EST, Friday.
Lets focus back on Italy. Why Italy is so important? Well Italy is world’s eighth largest and Europe’s third largest economy. Its GDP is about $2.6 trillion. The debt-to-GDP ratio is well above 120 percent. Thus, Italy has got enough butterflies in its belly to disrupt global financial recovery. Europe would be the obvious and worst hit if Italy falls into deep recession. And I won’t be surprise to see Sicilian Mafia migrating toward emerging markets; just to derail their growth story.
Disclaimer: I am not promoting Mafia neither influenced by Godfather (movie).