The euro rebounded to 1.3120 from 1.3020 (+100 points) in European trading on shortcovering price action as the election in Italy continues to concern the markets despite a modest recovery in the Italian and Spanish bonds. The immediate fear after yesterday's election that the deadlocked Italian government would deepen Eurozone’s debt crisis has moderated despite the majority vote for candidates who oppose the austerity policy of the Italian government. Euro-sterling also gave momentary support to the single currency as it rose 70 points in Europe to 0.8645 from 0.8575.
The yield on 10-year Italian bonds eased down 11 basis points to 4.80 percent from rising as much as 44 basis points yesterday. The 10-year Spanish bonds trimmed the yield lower by 27 basis points from rising by 43 basis points yesterday. Stocks on the other hand, fell by 2-3 percent in Europe.
Italy’s pre-election favorite Pier Luigi Bersani won the lower house by less than a half a percentage point. Silvio Berlusconi won a blocking minority in the Senate.
Bersani ran on a pledge to maintain budget rigor, while Berlusconi campaigned for a reversal of austerity.
Euro Stoxx fell 68 points to 2,584.48 (-2.57%), DAX fell 140.44 points to 7,633.39 (-1.81%).