It seems almost surreal to note that a mere two days after Italian Prime Minister Matteo Renzi spectacularly lost his referendum on constitutional reform and resigned, that the FTSE MIB managed to post its best levels since the day of the UK Brexit vote on the 23rd June, with banks amongst the biggest gainers.
The main drivers behind the moves this week don’t appear to be immediately apparent given that the options open to Italian officials in trying to fix Italy’s banks aren’t particularly appetising on either side of the ledger.
While Mr Renzi has been persuaded to stay on in the short term until the Italian budget is passed, investors appear unflustered by any concerns about the political vacuum which might appear in his absence when he finally does depart, probably because markets perceive he may well be replaced by current finance minister Padoan. The current calm could soon disappear if new elections start to become a possibility, as some opposition politicians have been calling for.
Italy’s largest bank Unicredit (MI:CRDI) resumed its upward momentum from last week despite concerns it may have to raise an extra €13bn in extra capital in the coming weeks, while even Monte dei Paschi's (MI:BMPS) share price managed to close in positive territory despite spending most of the day yesterday deep in the red.
In the US, equity markets have continued to break records, this time the Russell 2000 made a new record high, following on from the Dow Jones on Monday, as all three US benchmarks closed the day in positive territory.
This looks to translate into a strongly positive open with the German DAX potentially set to open at its highest levels since early January, and above the 10,800 level that has capped every single rebound since August.
In the UK, the latest Brexit arguments continue to be heard in the Supreme Court while we are also expected to get a vote today in the House of Commons asking MP’s to respect the will of the people and calling for Article 50 to be triggered by the end of March. If Parliament ratifies the motion then Parliament will have had its say, however the vote does have its risks given that any “Remainers” could conceivably vote in their own interests against the motion, and really put the cat amongst the pigeons so to speak if it fails to pass.
We also have the latest manufacturing and industrial production data for October which is expected to show gains of 0.2% as the improvements in the PMI numbers continue to filter down into the official ONS data.
The latest NIESR GDP estimate for November is also expected to reinforce the continued resilience of the UK economy showing an expansion of 0.4%, unchanged from the October number,
EURUSD – having failed to push above the 1.0800 level and head towards 1.0870 we could well drift back towards the 1.0650 area. A move below 1.0460 could well be the catalyst for a move towards parity and a retest of levels seen at the beginning of the century.
GBPUSD – the move towards the 1.2880 level remains on track for now slipping back from the 1.2775 area. Pullbacks should now find support down near the 1.2520 area, the initial break up area. Only a move through 1.2300 opens up the potential to revisit the recent lows near the 1.2100 area.
EURGBP – found support down near the 200 day MA, just above the 0.8280 level before rebounding. The current rebound is finding resistance just below the 0.8490 area, with a break retargeting the 0.8600 area.
USDJPY – currently finding some resistance just below the 115.00 level. The main resistance sits up near 115.60 and the 61.8% retracement of the 125.85/98.95 down move. Below 112.40 argues for a retest of the 111.20 area.
FTSE100 is expected to open 31 points higher at 6,810
DAX is expected to open 55 points higher at 10,830
CAC40 is expected to open 24 points higher at 4,656
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