Fuel crisis: European criticism 'short-sighted' says Brazier
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The bloc’s finance chiefs have never met to discuss bread-and-butter issues such as the hike on taxpayers’ bills. The move is a testament to deep concerns across the EU for the winter, paired with the rise of inflation and the consequences this will have on member states’ wallets.
Eurozone governments are set to submit their states’ budgets to the EU by October 15, putting pressure on Brussels to find a prompt and common solution.
Borrowing costs across the euro area nudged up on Monday, as unease that rising inflation could prompt central banks to unwind massive monetary stimulus sooner rather than later weighed on sentiment among bond investors.
Ten-year government bond yields from Germany, France and the Netherlands rose almost 20 basis points in September as signs that inflation could prove stickier than expected and a hawkish shift from the likes of the US Federal Reserve and the Bank of England rattled bond markets.
While bond yields have found stable ground, the backdrop remains bearish with oil prices hovering around $80 a barrel and European gas prices on Monday rising to new highs.
The Organisation of the Petroleum Exporting Countries, and its allies are likely to stick to their existing agreement to add 400,000 barrels per day of oil to the market in November, sources said on Monday, despite pressure from consumers to cool a red hot market.
The recent rise in eurozone inflation has been a structural driver in supply disruptions and the European Central Bank has to watch out for any sign of wages increases, ECB vice-president Luis de Guindos said.
“It feels like inflation concerns are a bigger worry right now and we see that in equities as well,” Rene Albrecht, a rates strategist at DZ Bank, said.
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“We can call it stagflation, where you have higher inflation and weaker growth and maybe the markets are playing that theme today.”
Germany’s 10-year Bund yield was almost 1 basis point higher on the day at -0.21 percent, within sight of almost three-month highs hit last week at around -0.17 percent.
Italian bonds underperformed, with 10-year yields up around 2.5 bps at 0.84 percent – also near recent highs.
Analysts said mayoral elections in Italy may be contributing an element of political uncertainty that helped explain the slight weakness in Italian bonds.
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The votes in Italy’s largest cities on Sunday and Monday are expected to show Matteo Salvini’s weakening grip of the right and see centre-left wins in the most high-profile contests.
Mr Salvini, who seemed on an unstoppable rise when he led his Lega party to a triumph at European elections in 2019, has seen his popularity slide.
“A poor performance may… eventually push the League to leave the coalition, fragilising Mario Draghi’s government at the time several reforms (justice, university, tax, etc.) are due to be adopted,” analysts at Societe Generale said in a note.
Former ECB chief Mario Draghi became Italian prime minister in February.
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