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Pre-Market Primer: "A Detonator That Could Blow Up the Eurozone"


Mario Monti's decision to step down sent shock waves through the markets.


Political uncertainty in Italy might have a negative impact on global shares today.
European stocks declined after Italian Prime Minister Mario Monti lost the Parliament's support and announced this weekend that he would resign after the 2013 budget is approved. Former Prime Minister Silvio Berlusconi, campaigning on an anti-austerity, anti-German policy, will seek reelection.
Markets are not pleased by the prospect of Berlusconi's return. The yield on Italian 10-year sovereign debt jumped to 4.85% from 4.54% on Friday. Credit default swaps on Italian bonds also jumped. Italy's main equity index, the FTSE MIB (INDEXFTSE:FTSEMIB) fell 3.5%. Trading on a few Italian banks was automatically halted after they declined by more than 5%.
On Saturday, Monti warned Berlusconi's People of Freedom Party that Italy should not become "the detonator that could blow up the eurozone." At the moment, Berlusconi is still fighting charges that he had paid for sex with a 17-year-old dancer while he was in office.
The center-left Democratic Party leader Pier Luigi Bersani will also run, and he vows to continue Monti's technocratic policies.
Greece extended the deadline for private bondholders to accept its buyback proposal. The offer of 40% payments reportedly went well, but Athens moved the deadline from Friday last week to tomorrow afternoon.
Global economic data added to the sour mood this morning.
Japan officially entered a recession in the third quarter of this year. The third-largest economy contracted by 3.5%. Previous estimates were for a 3.3% decline. French industrial production unexpectedly declined by 0.7% in October. Elections will be held on Dec. 16. The expected front-runner for Prime Minister, Shinzo Abe, is calling for further stimulus.
There were a few good points in today's news, however. German exports unexpectedly rose 0.3% in October after a 2.4% decline in the month before. Demand outside of the eurozone helped Germany escape a decline. Chinese factory production rose 10.1% over last year in November. Retail sales grew by 14.9% and the country's consumer price index rose a steady 2%. Exports gained only 2.9% from last year and imports were flat.
With no US economic data to look forward to today, American equity indices are set to decline. Futures on the Dow Jones Industrial Average (INDEXDJX:.DJI) declined by 0.06% to 13,135. S&P 500 (INDEXSP:.INX) futures fell 0.13% to 1,414.20 and Nasdaq (INDEXNASDAQ:.IXIC) 2,631.25.

American International Group (NYSE:AIG) agreed to sell a 80.1% stake in its aircraft-leasing unit to an investor group led by New China Trust Co.'s Weng Xianding for $4.23 billion. AIG said that Hurricane Sandy will cost it as much as $1.3 billion, sending shares down this morning.

Apple (NASDAQ:AAPL) shares fell just over 1% after Jeffries analysts cut their forecast on the company's shares to $800 from $900.
Twitter: @vincent_trivett
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