By Michael McKenna
While the Brexit debacle was and is a fine opportunity to discuss one's highest hopes for the European continent, there comes a point at which post-World War Two ideals must contend with contemporary dysfunction.
In our view, the ongoing Italian banking crisis is as good an opportunity as any to jump from the former stream to the latter, shedding the clean, hopeful blueprints of '50s modernism for the rain-streaked concrete car park of 2016.
No bailout for Italian banks
Ain't gonna happen, says Italian prime minister Matteo Renzi.
"Italy has no intention of defying Brussels on the banks. We respect the rules and prefer market solutions for our banks," said the PM yesterday
One could be forgiven for reading "Brussels" as "Berlin," as it is no secret which European power looks most unfavourably on bailouts and other such special financial privileges. Whatever the truths of the closed conference rooms and high-level hallways, however, Renzi's latest statement appears to close the door on massive cash injections, leaving the future of Italy's big banks in question.
At the moment, says Saxo Bank fixed income trader Michael Boye, "Italian government bond yields appear unmoved by the collapse of the country's banking sector". According to Boye, the current price structure reflects "no elevated risk premium", leading the bond trader to term Euro-BTP futures "a short candidate".
Italy's banks are certainly reflecting their collective collapse in equity markets, however, with the FTSE Italia All-Share Banks index down by 53.7% over the past six months. Elsewhere, reports Saxo equities head Peter Garnry, sentiment appears soft in an overall sense in the wake of a weak Asian session; the Dax is down about 100 points as of 0738 GMT while the FTSE 100 has dropped by about 0.5% following the opening bell.
In earnings, Garnry tells us that US-based retail chain Walgreens is set to report today with analysts expecting EPS at $1.14, up 12% year-over-year, while revenues are forecasted to gain by 3% over the same period with $29.7bn forecasted.
"We're positive on Walgreens ahead of today's release," says Garnry.
A swing and a miss for the Aussies
Concerning the weak Asian session cited above, it contained a few items of note with the Chinese PMI release actually coming out quite strong at 52.7 for services and 50.3 for the composite reading. Less robust was the Australian trade balance print, which shocked forecasters by blowing back past the $2bn (AUD) mark at $2.2bn.
Forecasters had expected $1.7bn, so the combination of this print and an inconclusive election that may take months to produce a ruling coalition in Canberra places a great deal of uncertainty around Australia, although the AUD stayed firm on the Reserve Bank's decision to hold interest rates steady.
For this currency, says Saxo Bank head of forex strategy John J Hardy, it is the next CPI release that is the most critical point on the horizon. "I'd need to see 0.76 in AUDUSD to confirm a rally here, and a fall through 0.73 for a sell signal".
Elsewhere in FX markets, cable continues its post-Brexit softness with Hardy reporting that sterling may well have further to fall.
Citing the "protracted period of uncertainty" launched by the June 23 referendum shock, as well as declining capital inflows (particularly with regard to the London property market), Hardy tells us that the rallies in the wake of the vertiginous downward drop seen after voting day have been shallow and GBP is struggling to find buyers.
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Source: Saxo Bank
One asset that has hardly struggled to find buyers of late is silver, where spot prices rose from $16/oz at the beginning of June to a high above $21/oz in yesterday's session. As the market gets more frothy, however, silver longs are beginning to wonder if they should call it a day.
How precious is 'precious'?
"Metals are looking for support today and silver has entered a consolidation phase," says Saxo Bank head of commodities strategy Ole Hansen. Spot silver fell to $19.50/oz this morning before retracing somewhat to trade just shy of the $20/oz handle.
The attention has in particularly turned to the Shanghai Futures Exchange where traded volumes have spiked while Hansen reports that "open interest is falling", adding that the silver trade has been "hijacked by day traders, particularly in China".
Given the massive volumes that can occur when Chinese traders place an asset in their collective focus, Hansen says that the silver trade could get very volatile, although unlike the China-driven spikes in steel and iron ore seen earlier this year, Hansen says the silver market is large, liquid and global enough to avoid the worst sort of speculation-related excesses.
Even so, cautions Saxo's commodities head, "when China gets a hold of something, it tends to get out of hand, for a short time at least".
While there might remain a literal world of difference between day-trading silver in Shanghai and queueing for an ATM in Milan, we will note that a great many things seem to getting a little out of hand lately.
Whether this is for the better or worse, we suppose, depends on whose hand it is.
Whatever the performance of its banking shares and credit ratings, however, Italy will always rank very highly on our personal "forgivability index". Photo: iStock
Editor’s note: From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.