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#SaxoStrats
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Macro Monday week 38: Keep Global Macro and Carry On
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The week ahead in macro
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Video / 26 June 2017 at 7:15 GMT

From the Floor: Italy's €17bn bank bailout in focus — #SaxoStrats

#SaxoStrats
   • Implied volatility hits new cycle lows: Hardy
   • US financials vulnerable as yield curve flattens
   • Italy bailts out two failing banks with national bankruptcy laws
   • Plan separates assets into 'good' and 'bad' categories
   • Intesa Sanpaolo to receive 'good' assets including senior bond holders
   • Brent crude oil finds support at $45/barrel

SaxoStrats
By Michael McKenna

Italy has made a major move to solidify its troubled banking sector, injecting €5 billion of taxpayer funds as well as up to €12bn in additional guarantees to wind down Veneto Banca and Banca Popolare di Vicenza, two failing banks from the country's wealthy Veneto region.

Saxo Bank head of equity strategy Peter Garnry points out that the plan differs substantially from Spain's recent bailout of Banco Popular, which transferred all of the bank's assets to Santander followed by an immediate capital raise. 

In this instance, says Garnry, Rome has decided to classify the failed banks' assets as either good or bad, transferring the latter (and only the latter) to Turin-based Intesa Sanpaolo.

The decision, says Saxo fixed-income trader Michael Boye, means that Intesa's acquisition of senior bond holdings will keep these assets "out of harms way". In Garnry's view, however, the move looks like a bit of an "outlier" as the Spanish procedure is much more in line with the European Union's Bank Recovery and Resolution directive.

"I suspect the EU approved this so as to hold down risk," says Garnry.

Intesa Sanpaolo:
Intesa Sanpaolo

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Source: Saxo Bank 

Beyond the Italian job, Saxo Bank head of forex strategy John J Hardy notes that implied volatility has hit a new cycle low, adding that the major forex pairs are starting the week in line with Friday's quiet session with little on the macroeconomic data calendar this week. (Read also Hardy's latest FX Update here on TradingFloor.)

One factor that might be of interest to FX investors, adds Hardy, is the new BIS annual report which cites the risks associated with continually accommodative policy from the major central banks.

Also on tap are US flash inflation Friday and a US commerce department report on the trade deficit due Thursday.

The latter, says Hardy, may pose some risk insofar as it could address some of the Trump administration's more protectionist stances on trade with the language regarding Chinese practices in focus.

Heading into today's session, adds Garnry, Brent crude oil has found support at $45/barrel, which could lead traders to contemplate a counter-trend trade, though supply risks remain high.

(Saxo Bank's macroeconomic strategist Kay Van-Petersen's weekly Macro Monday webcast is available here on TradingFloor.)

Intesa Sanpaolo
Intesa Sanpaolo's headquarters in Turin, Italy. Photo: Shutterstock


Michael McKenna is an editor at Saxo Bank

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