Italian December Business Confidence Rises After Recession Eases

Italian business confidence rose for a second month after a recession eased in the third quarter and the nation’s borrowing costs declined.

The manufacturing-sentiment index increased to 88.9 in December from 88.5 the previous month, Rome-based national statistics institute Istat said today. Economists had predicted a reading of 88.8, according to the median of 12 estimates in a Bloomberg News survey. Separately, Italian borrowing costs stayed close to a two-year low at an auction of bills.

Italy’s economy shrank 0.2 percent in the three months through September, about a third of the contraction recorded in the previous quarter. Still, the country’s fourth recession since 2001 is now in its second year and this quarter is marked by a “very negative context,” business lobby Confindustria said in a report last month.

Confidence is “well short of the level required to herald an economic recovery in the first half of 2013,” said Raj Badiani, an economist at IHS Global Insight in London. While the improvement in the index indicates the economy is “entering a less punishing phase,” it offers “no hope of an emerging recovery phase.”

Today’s report also showed that sentiment in building, services and retailing weakened this month. A gauge of services confidence dropped to 71.9 from 73.4, while a measure for retailers fell to 77.8 from 80.6. An index of overall economic sentiment fell to 75.4.

Debt Auction

Italy sold 8.5 billion euros ($11.3 billion) of 177-day bills today. The average yield was 0.949 percent, compared with 0.919 percent at the previous auction of similar-maturity debt on Nov. 28, which was the lowest since April 2010. Investors bid for 1.57 times the amount of bills offered.

The sale was the first since Prime Minister Mario Monti said on Dec. 23 that he would consider being a candidate for premier in the elections on Feb. 24-25.

Monti’s announcement came weeks after former Prime Minister Silvio Berlusconi reversed a decision to stay out of the election, before offering to stand aside if Monti would lead a coalition of “moderates.” Berlusconi is now campaigning against the Monti government.

Bond Yield

Italy returns to the market tomorrow with the sale of as much as 6 billion euros of five and 10-year bonds. The yield on the nation’s 10-year debt rose 4 basis points to 4.51 percent today. It fell to 4.35 percent last week, the least since December 2010, helped by a European Central Bank pledge to safeguard the euro.

Elsewhere in Europe, the British Bankers’ Association said U.K. mortgage approvals rose last month to the highest level since January, adding to signs of stabilization in the market. Lenders granted 33,634 approvals in November, up from 33,128 in October. Still, net mortgage lending rose by just 164 million pounds ($266 million) in November, the BBA said.

A gauge of Swiss consumer demand declined in November on a drop in new car registrations and a lower number of hotel stays by Swiss nationals. The index by UBS AG fell to 1.23 points from a revised 1.30 points in October.

In Asia, the Philippines intensified efforts to contain a surging peso, joining South Korea in clamping down on currency forward positions as monetary stimulus in the world’s biggest developed economies spurs capital flows to Asia.

New Ceiling

The Southeast Asian nation imposed a ceiling for non- deliverable currency forwards for local lenders at 20 percent of capital, and 100 percent for foreign entities, Bangko Sentral ng Pilipinas said yesterday. South Korea said in November it would tighten caps on currency forward positions at banks.

The peso is the best performer in Asia after the South Korean won this year as Philippine growth exceeding 7 percent last quarter lured investors seeking better returns amid interest rates near zero and monetary easing in Europe, the U.S. and Japan.

South Korea’s government cut its 2013 growth forecast today, as Europe’s debt crisis caps demand for exports. Gross domestic product will increase 3 percent, the Finance Ministry said, less than the 4 percent predicted in September.

Later today, U.S. data may show that purchases of new houses rose to the highest level in more than two years in November. New-home sales climbed to a 380,000 annual rate, the most since April 2010, according to a survey of economists by Bloomberg before figures from the Commerce Department.

Figures from the Conference Board will show its confidence index fell to 70 in December from a more than four-year high of 73.7 the previous month, according to a separate poll.

A report yesterday showed home prices climbed more than forecast in October. The S&P/Case-Shiller index of property values in 20 cities increased 4.3 percent from a year earlier, exceeding the 4 percent gain forecast by economists.

To contact the reporters on this story: Chiara Vasarri in Rome at cvasarri@bloomberg.net; Fergal O’Brien in London at fobrien@bloomberg.net

To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net

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