Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Italian Banks In Focus After Veneto Bank Bailout

By CMC Markets (Michael Hewson)Market OverviewJun 26, 2017 07:30
Italian Banks In Focus After Veneto Bank Bailout
By CMC Markets (Michael Hewson)   |  Jun 26, 2017 07:30
Saved. See Saved Items.
This article has already been saved in your Saved Items

While we may have seen new record highs last week for global stocks including the DAX and S&P500 there are worrying signs that valuations continue to look a little stretched at a time when concerns are rising that we could be seeing some signs of a plateauing in global growth prospects.

Rising production and concern about slowing demand in Asia, has contrived to push oil prices sharply lower in the past few weeks, despite OPEC’s recent fudged decision to extend their output freeze until March next year.

US shale producers continued to add rigs for the 23rd week in succession, with 758 now compared to 428 a year ago, while the exclusion of Nigeria and Libya from the OPEC production cap has seen output barely budge since November last year.

It’s quite a contrast to the beginning of 2017 when optimism was high that the agreement reached a few weeks earlier, would help keep a decent floor under the oil price and as we come the end of the first half of 2017 OPEC producers are having to face the prospect of an oil price nearly 20% below where they thought it would be.

It is this concern about falling inflation that is making investors nervous at a time when central bankers seem intent on acting to start pushing rates back up. In the past couple of weeks we’ve heard from central bank officials talk about the prospect of tighter policy with Fed officials still talking up the prospect of a third rate rise by the end of the year, while last week the markets complacency about a UK rate rise was given a jolt by the sudden about turn by Bank of England chief economist Andrew Haldane’s sudden conversion to a more hawkish stance, adding a new dimension to the 5-3 split on the recent Bank of England decision to hold interest rates.

We’ve also seen a re-emergence of optimism about the eurozone economy in recent weeks with a strong rebound in economic activity across the big four of Germany, France, Italy and Spain, as subsiding political risk and a slow decline in unemployment has boosted sentiment.

This recent optimism is likely to face a renewed test this week in the face of the weekend announcement from Italy that tore up the rule book around the recapitalisation of failing banks, and threw what was left of the move towards a European banking union into much greater doubt.

On January 1st 2016 new EU bail-in rules stipulated that before a single euro of taxpayers money could be used to bailout a failing bank that share and bond holders should absorb the cost, to the tune of up to 8% of the total liabilities. As with most things in the EU it didn’t take long for this approach to hit the buffers on the altar of political expediency, and next year’s Italian elections. The rules also stated that national authorities would no longer be responsible winding up failing banks, and that this would be transferred to the Single Resolution Mechanism.

The failure and bailout of two Veneto based lenders with Italian taxpayer’s money has seen Intesa Sanpaolo (MI:ISP) acquire the good assets of the failing banks for €1, while leaving the bad assets on the books of the Italian government, to the tune of about €17bn. In addition the government has pledged to offer guarantees up to the value of €12bn for potential losses, while senior bond holders and depositors are protected.

So much for the so called new single European rule book and the much vaunted European Banking Union. It appears that there is one rule for Spanish banks, and the recent rescue of Banco Popular, and another for Italian banks.

Let’s hope the Italian government has deep pockets given that this particular bailout is a fraction of the non-performing loans in the Italian banking system, of which it is estimated there are about €300bn.

EURUSD – the range trade remains in play with support just above 1.1100 and resistance up at 1.1300. If support near 1.1100 gives way we have the potential to open up a move lower towards the 1.0900 area, with the 1.1020 area the first port of call. This would signal a triple top reversal with resistance back up towards the 1.1300 area.

GBPUSD – having managed to hold above the 1.2580 area and 200 day MA at 1.2550 the risk of a rebound back through 1.2820 remains a possibility. The 100 day MA at 1.2630 should also act as support. A slide back below the 200 day MA could well open up the 1.2380 area again.

EURGBP – the previous highs at the 0.8865/70 area remain a key resistance and the main obstacle to a move up to 0.8920. While we remain below this key level we could well head back towards the 0.8720 level.

USDJPY – the inability to move above Kumo cloud resistance at 111.80 could well prompt a drift back towards 110.60 and the 200 day MA. A break through resistance opens up the potential for further gains towards the 112.40 area, and 113.00.

FTSE100 is expected to open 13 points higher at 7,437

DAX is expected to open 5 points higher at 12,738

CAC40 is expected to open 2 points higher at 5,268

DISCLAIMER: CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed.

No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

Original Post

Italian Banks In Focus After Veneto Bank Bailout

Related Articles

Italian Banks In Focus After Veneto Bank Bailout

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The inherent concept of such investments means that they are not suitable for the investor seeking income from such investments, and are only suitable for those who have the required experience and understand the market risks. You should carefully consider your investment objectives, level of experience, and seek advice from an independent financial advisor if you have any doubts.
Continue with Google
Sign up with Email