Europe midday: Italian shares surge as ECB holds emergency bond meeting

The pan-European Stoxx 600 index was up 0.93% with Italian bank stocks rallying after declines in recent days over concerns about the Italian government’s rising debt costs.

Shares on Italy's FTSE MIB index surged in response, outperforming the Stoxx and rising 2.62%. Banks Unicredit, Intesa Sanpaolo, Banco BPM, FinecoBank and BPER Banca were all higher.

Government bonds have been sold off in recent days pushing up yields and making it more expensive for governments to borrow. News of the meeting saw the yield on the Italian 10-year bond falling 26 basis points to 3.95%, although there did not seem to be any indication from the ECB as to how it can stabilise the market.

"The ECB is clearly worried that ‘peripheral’ bond yields are rising too much...but this is all a bit of a mess coming so soon after the scheduled meeting last week," said Markets.com analyst Neil Wilson.

"Here we get to the fragmentation risk and a possible new tool we thought they might signal last week, but didn’t. The spread between Italian and German 10-year yields has widened to more than 240bps, the widest since March 2020 as the Italian 10-year BTP climbed over 4%. Italian yields have fallen back sharply on the ECB update this morning, however. Italian stocks rallied handsomely, too."

Investors are also jittery about the next move from the US Federal Reserve as inflation continues to surge.

“Expectations have risen that policymakers at the US central bank will slam on the brakes hard with a 0.75% hike, to stop prices spiralling out of control,” said Hargreaves Lansdown analyst Susannah Streeter.

“The worry persists that a more aggressive attitude by the Federal Reserve will see growth go into reverse and could set off a slow motion crash into recession, with troublesome repercussions for global growth. The red warning lights have begun flashing after the closely watched US government bond yield curve briefly inverted yesterday.”

“The yields on two-year Treasuries rose above 10-year borrowing costs – a development which has regularly signalled a coming recession. The curve is still worryingly flat, with the yield on two-year Treasuries at around 3.35% and 10-year bonds only a nudge above with a yield of 3.40%.”

In other equity news, shares in UK-listed retailer WH Smith were up as the company forecast annual earnings at the upper end of expectations.

Whitbread gained after the the pubs and hotel operator beat expectations in the first quarter as demand continued to rebound following the worst of the pandemic.

The owner of Premier Inn, Brewers Fayre and Beefeater, among others, saw UK accommodation sales surge 221.6% on a like-for-like basis year-on-year, or by 21.3% when compared to the same period in 2019.

Shares in Swedish medical equipment maker Getinge fell after the company lowered its outlook.