Monday 14.40 GMT
Overview
Italy’s stock market and much of the country’s banking sector is back under pressure, as investors refine their response to the No vote in the country’s referendum on constitutional reform that led to the resignation of Prime Minister Matteo Renzi.
The yield on the country’s benchmark sovereign debt yield remains higher as investors continue to sell Italian government bonds. Italy’s 10-year government debt yields, which climb when investors sell the debt, have hit a fresh session-high, up 14 basis points at 2.05 per cent.
But the euro has even managed to rise on the day against the dollar, up 0.5 per cent at $1.0719, bouncing up off lows last seen in March 2015. Coming in initial reaction to the vote, those losses took it down as much as 1.6 per cent at $1.0503.
While Italy’s vote brings political uncertainty back to the shared-currency area, investors are no strangers to the prospect of turbulence within the eurozone.
“There is no reason to panic,” said Peter Schaffrik, chief European macro strategist at RBC Capital Markets.
“There are quite a few steps that stand between the current status quo and the market’s main fear of a referendum on euro membership. However, the probability of that coming to pass surely must have increased.”
Nicola Mai, Head of European Sovereign Credit Research at Pimco, the bond trader, said: “Negative market sentiment on the vote is likely to be mitigated by the fact that the market has been expecting a ‘no’— based on polls — and that the ECB remains in play in European sovereign markets.”
Milan’s FTSE MIB is now down 1.2 per cent on the session, heading back toward earlier losses of 1.9 per cent. It is once again being led lower by its banks. UniCredit is down 4.9 per cent and Banca Monte dei Paschi di Siena is down 2.6 per cent, having been unable to hold modest intraday gains.
Wider European stock markets are more poised. Frankfurt’s Xetra Dax 30 is up 1.2 per cent. At one point in early trade, only two of its stocks registered losses: Commerzbank and Deutsche Bank. London’s FTSE 100 is up 0.2 per cent. The region-wide FTSE Euro Stoxx 600 is up 0.5 per cent.
Hot topic
Given the shock of both the UK vote for Brexit and Mr Trump’s victory in the US presidential election, investors are more on guard for political upsets in the eurozone that have the potential to raise questions over European Monetary Union. The Italian referendum is followed by French presidential elections in the spring in which Marine Le Pen, leader of the far-right National Front, is expected to make it through to the final round. The extent to which the ongoing market reaction centred on Italy’s financial sector, continues to define sentiment will be closely followed.
What to watch
The US stock market is on track to provide a high point: The S&P 500 is up 0.5 per cent in initial trade at 2,202.3. That leaves Wall Street’s most watched equities gauge, which also sets the tone for much of the world’s share trading, heading back to its record peak of 2,214.10 reached on November 30.
The Dow Jones Industrial Average has hit a fresh record high, up 0.4 per cent at 19,261.57.
Commodities
Brent crude surpassed the high point that it reached after Opec’s agreement last week to limit supply, which took it just under $54, reaching a day-high of $55.33 a barrel. It has since slipped back somewhat to $54.91, up 0.8 per cent.
Nymex WTI is up 0.7 per cent at $52.06.
Equities
The resilience on Germany’s stock market is being driven by carmakers and industrial stocks. BASF is the top single gainer, up 3 per cent.
In London, resource stocks are in the lead on the FTSE 100.
Markets across Asia were weaker on Monday following a weak lead from Wall Street on Friday. Japan’s Nikkei 225 fell 0.8 per cent. The Shanghai Composite is down 1.2 per cent.
A new trading link between Hong Kong and the nearby city of Shenzhen went live this morning but the markets were lower. Hong Kong’s Hang Seng was down 0.3 per cent, while China’s Shanghai Composite was down 1.2 per cent and the technology-focused Shenzhen Composite was off 0.6 per cent.
Forex
The wider trend for a stronger dollar is faltering, with the index tracking the world’s reserve currency down 0.3 per cent overall. The pound has climbed from intraday losses and is also flat against the dollar at $1.2715. Against the euro, the pound is 0.5 per cent stronger at £0.8416, as the Supreme Court hearing on the extent of Parliamentary scrutiny required over the process of the UK leaving the EU begins.
The big mover among Asian currencies is the New Zealand dollar, down 0.6 per cent. Already weak in early trade, the kiwi suffered a further knock after John Key, the country’s prime minister, announced unexpectedly that he was stepping down.
Additional reporting by Richard Blackden
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