Article / 29 November 2016 at 8:00 GMT

Morning Markets: Italian banks spark contagion fear

Former managing editor, TradingFloor.com / Saxo Bank
Denmark

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Watchlist

  • Eurozone: Business and Consumer Confidence Indicators    (1000 GMT) 
  • US: Q3 GDP                                                                            (1330 GMT) 
  • US: Consumer Confidence Index                                            (1500 GMT) 

A dreadful opening to the week for Italian banks sparked by a Financial Times report spread beyond its borders to send tremors through the European banking sector with just five days to go before Italy votes on constitutional reform.

Italy's largest bank Unicredit tumbled 5.7% Monday and second bank Intesa Sanpalo fell 4.2% with the likes of the Royal Bank of Scotland, Deutsche Bank and Societe Generale all taking significant hits in the aftermath. The Italy 40 came close to breaking beneath the 16.0 handle before closing down 1.5% on the open and nearly 3% from its intraday high on November 25.

The referendum has effectively become a proxy vote for EU membership with the anti-euro Five Star Movement party looking to sweep up the scraps if prime minister Matteo Renzi's gambit to ease the process of decision making in Italy fails and push for an election in 2017 which would almost inevitably focus on Italy's membership of the common currency.

Elsewhere, oil once again swung on the vagaries of Opec headlines as the latest focused on Iran's oil minister and his hopes for a deal. Both Brent and WTI climbed above $48/barrel and $47/b respectively, but in the hour before the European open, that wave of optimism had started to subside pushing the key benchmarks back some $0.50/b.

The dollar is showing signs of emerging from the Thanksgiving-induced stupor of the last few days to probe for weaknesses among its major peers. Sterling in particular looks vulnerable dipping below the 124.0 handle this morning after European Central Bank president Mario Draghi warned London that it would come off worst in a tit-for-tat descent into protectionism.

Embarrassingly for Theresa May's government, an eagle-eyed photographer also gave the world a glimpse into Britain's negotiation stance on Brexit by catching on camera handwritten notes of an aide based on a "have cake and eat it" approach when dealing the "very French" negotiating team. Nothing like revealing your hand of course in a game of poker.

But it is Italy, with the Opec meeting tomorrow a strong second, that is dominating the headlines, sending the Trump-led rally story of the last three weeks to the background. EURUSD is back below the 106.0 handle and another bad day for Italian banks and the Italy 40 as a whole could spark the pair lower, especially if dollar does shake off the holiday doldrums.

Market signals

Asian session

  • Japan's household spending came in at minus 0.4%; minus 1% was expected
  • Unemployment rate stayed steady at 3% while retail sales fell 0.1% in October
  • Asian markets opened mixed on overseas leads
  • The ASX200 closed down 7 points to 5458 thanks to gains in the big-four banks
  • South Korea's embattled president has offered to relinquish power
  • Qantas drops bid for deeper partnership with American Airlines
  • Iron ore rose 1.5% to $80.83/tonne
  • Australia's monthly new-home sales fell by 8.5% in October – a two-year low
  • Oil prices gained more than 2% ahead of Opec's official meeting Wednesday

Forex ahead

  • The JPY is trading stronger against the USD; in early Asian trade it was at 111.84 
  • The greenback pulled back pushing other major currencies higher
  • EURUSD looking to test 105.0 and then 104.62

From the Floor

Back to normal. "The ’Trump euphoria' trend is fading,” says Moltke-Leth

Solid resistance. “Copper has hit a brick wall at $2.75”, says Hansen

Get all the latest from Saxo Bank's trading floors in From the Floor, within the hour.

In opinion

1..2..3
Sentiment is in the frame today with the Eurozone's business confidence indicator set to track up to a five-year high for November, writes James Picerno.

No lift-off
Qantas is dropping its bid to form a deeper partnership with American Airlines after the US regulator ruled it would harm competition, says Saxo Capital Markets (Australia).

Asian conundrum
Asian emerging markets can't catch a break, caught between fears around a stronger USD or fears around the global outlook, says Saxo's APAC team.

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Italy votes Sunday and Europe waits...nervously. Photo: iStock

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2y
Martin O'Rourke Martin O'Rourke
The Italy 40 has started positively in the opening hour heading above the 16.30 mark, supported by a return to the green for Unicredit and Intesa Sanpalo, but Italy's biggest bank has lost momentum to head back towards the 1.90. mark.

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