Markets relax, a bit, on Italy crisis

The consensus in financial markets today seems to be that yesterday’s drop on fears that Italy was headed to a crisis that could shake the euro were a bit overstated.

This isn’t to say that markets have concluded that the crisis is over–or never existed–just that it won’t bring the end of the EuroZone as we know it tomorrow.

So everything that went into the dumpster yesterday has rebounded to recover some of its losses today. The Standard & Poor’s 500 stock index closed up 1.27% and the Dow Jones Industrial Average rose 1.26%. The yield on the Italian 10-year government bond dropped 32 basis points, as the price of the 10-year bond recovered much of its loss from Tuesday. The yield on the 10-year Treasury climbed 6 basis points to 2.84% as some of the money that fled into safe havens returned to other assets. The Dollar Spot Index and the Japanese yen, two of those safe havens, gave up 0.5% and 0.2%, respectively, today.

The markets showed a shift back to risk on–well a bit of risk on anyway–with the iShares MSCI Emerging Markets ETF (EEM) closing ahead 0.77%.

Actual news  from Italy was sparse. The head of the Five Star Movement, one of the two populist parities that had attempted to form a government, made conciliatory noises, about shuffling proposed cabinet choices to meet objections by Italy’s president, who had vetoed a previous slate because its obvious anti-euro slant would, he feared, lead to a financial crisis in Italy. But the head of the other party, the League, said, essentially, “No more compromises. Let’s go straight to a snap election.” And the parties’ platform of tax cuts and higher spending–in one of the most indebted countries in the world–remains the same brew that so frightened financial markets earlier.

Watch to see how the market reacts once it is over its relief that the world didn’t come to an end this morning and returns to a focus on the depth of Italy’s political crisis.