Following the rout seen in many markets during Tuesday’s session, there’s been an attempted recovery this morning with stocks moving off their lows and the euro edging back above the 1.16 handle against the US dollar.
The FTSE 100 has made some some small, cautious gains but remains highly sensitive to the global risk backdrop and any further developments in Italy.
Hopes raised of coalition government
The stand out moves during yesterday’s session came in Italian fixed income markets with the 2-Year bond yield seeing its largest intraday increase on record, as it hits its highest level since 2013. The size of the move in percentage terms was larger than anything seen during the eurozone debt crisis and whilst there was some justification for it, the speed and scale suggests it was perhaps exacerbated by stop loss orders being triggered.
News that the Five Star Movement and the far-right League are back in talks regarding a coalition government has delivered some respite, but it remains probable that a new election will occur. Polls have shown a sharp increase in popular support for the League since the last election in early March, and perhaps this is why their Leader, Silvani, has stated his opposition to a July 29th election, in the hope that this will grow further by the time Italy votes again.
Whilst the mood is a little bit more upbeat, it appears unlikely that this problem is going to go away anytime soon and the large declines seen in equities yesterday reveal a susceptibility to further weakness going forward.
Chief financial officer resigns from RBS
The Royal Bank of Scotland (LON:RBS) announced this morning that its chief financial officer and executive director Ewen Stevenson has resigned just hours before today’s AGM. Tuesday saw a large drop in the share price of RBS after reports that the government is looking to trim its stake - possibly as early as next week. The £3.7B settlement to the US Department of Justice (DOJ) regarding a mortgage mis-selling case earlier this month appears to have removed a significant barrier to a government exit, and the news has weighed on the stock.
The market has dropped lower once more today to hit a 3-week low and hand back all the gains seen after the DOJ settlement and given that a large seller is now waiting in the wings it appears that the stock’s upside is limited for the foreseeable future.