The positive news of Moody’s promotion causes the spread to retreat while the FtseMib index at 2.45pm marks a slight decline of 0.06% after a slightly declining morning. The coupon detachment of some large groups including Eni, Intesa Sanpaolo and Poste Italiane weighs on the performance of the FtseMib. Furthermore, Thursday is Thanksgiving Day in the United States and the US financial market will be closed for the holiday. This appointment weighs on the exchanges which are more contained.
On Friday Moody’s, contrary to many expectations, confirmed Italy’s rating at “Baa3” and improved its outlook on Italy from “negative” to “stable”. The banking sector in Milan is benefiting from the news, with most of the listed institutions advancing around a percentage point.
The BTP/Bund spread also performed well, returning to the 172 basis point area, at its lowest level since September. Equita analysts wrote that «the confirmation of the rating and, above all, the improvement in the outlook represent positive news for the Btp/Bund spread, which, although not discounting a downgrade, can still help sentiment and have positive implications above all for financial securities”.
There are also shadows and all eyes are on the new stability pact: according to what Filippo Alloatti, Head of (Financials) Credit of Federated Hermes writes: «The raising of Italy’s outlook by Moodys is a recognition of good health and the profitability of the banking sector. And also the stabilization factors of debt dynamics – both on the public and private debt front. From our point of view, we agree with the recent review by the rating agency: contrary to what one might think, we believe that both our country and the Eurosystem more generally have the means available to make it manageable the large debt in relation to GDP. The best way to capitalize on this positive development for Italy is through the government’s renewal of efforts to agree on the new stability pact and future governance of the Euro area. The challenges for the Italian economy remain, but the solution can only be European.”
The prospects for 2024
Any positive news for Italy is good for the rest of the euro area. «In fact, for government bonds our country will be the main issuer in 2024» recalls Gianni Piazzoli, Chief Investment Officer of Vontobel Wealth Management Sim who then continues: «According to the analysis published by Unicredit, Italy next year will have to finance 408 billion euros of issues between maturing securities and new needs, Germany 300 billion and France 276 billion. For Italy, Moody’s much-feared judgment arrived with the confirmation of the BBB- rating, but with the surprise of an outlook improved from “negative” to “stable”. We read that the decision “reflects the stabilization of the country’s economic prospects, the health of the banking system and the dynamics of public debt”. The PNRR (“once in a generation opportunity”) and the lower difficulty in energy supplies are two other supporting elements cited in Moody’s assessment, which practically reports no numbers other than a debt/GDP expected at 140.3% in 2023 (the government indicated 140.2%) and a 2024 deficit at 4.4% (the government indicated 4.3%). For the rest, the press release focuses heavily on the strength of the banking sector and the strong improvement in the bad debts/loans ratio which dropped to 2.4%, now in line with other European countries. Like Fitch, Moody’s also cites the ECB’s TPI, if activated to contain spreads, as a further safeguard in favor of Italy”.