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Politics Weighs On Equities As Unicredit Cash Call Sees Shares Dive

Published 07/02/2017, 06:11
Updated 03/08/2021, 16:15

Europe

European markets have really struggled to make any headway today with investors once again reluctant to try their luck against a backdrop of rising political risk. Narrowing opinion polls in Germany eroding Angela Merkel’s lead, along with Marine Le Pen launching her bid for French President at the weekend has seen European stocks rollover, and that’s after the geopolitics surrounding US President Donald Trump.

Confidence in Italy’s banking system continues to remain fragile after Italy’s largest bank, Unicredit (MI:CRDI) share price dropped sharply as it kicked off its latest €13bn cash call insisting that this time it’s different, after three previous capital calls which have seen €14bn go up in smoke.

Let’s hope so, however coming on the heels of Friday’s sharp write down of its stake in Italy’s bank bailout fund the omens aren’t promising with the shares getting suspended, in a what has become a very familiar theme for banks in this bombed out sector.

One wonders how often Italian banks will continue to come across like Oliver Twist, “please sir, I want some more”, and how often investors will be prepared to keep throwing money at a problem that seemingly has no end?

The FTSE100 has outperformed, helped by the rise gold mining stocks with Randgold Resources (LON:RRS) leading the way as it announced a 50% increase to its 2016 dividend. Higher commodity prices, specifically gold, along with lower costs has meant that full year profits increased significantly from $260.8m to $402.6m, and there has been confirmation of expanding their exploration programmes to take advantage of this.

As Randgold hits a 3-month high, Fresnillo (LON:FRES) has followed suit as expectations of their gold earnings increase. Fresnillo only recently logged record gold and silver output for 2016, and so could well outperform, despite recent downgrades by analysts at Citigroup (NYSE:C).

House builders Taylor Wimpey (LON:TW), Persimmon (LON:PSN) and Barratt Developments (LON:BDEV) have slipped back on news that a Government white paper on planning permission timetables set to be released this week, could force them to adhere to a timetable to build their homes, or risk losing their planning permission.

The companies have raised concerns that such measures could lead to a reduction in homes being built as developers try to reduce bottlenecks, which would then have the effect of potentially reducing yearly revenue figures and their ability to slowly release houses onto the market to keep prices stable.

US

After Fridays post payrolls rebound, US markets have rolled over into the new week, opening lower, as the end of week euphoria that greeted the announcement of a review into Dodd Frank regulation, is just that, a review, and with no guarantee of making it through Congress.

While some could argue that a lot of the Volcker Rule and Dodd Frank could do with some fine tuning, it’s asking a lot to believe that all of it will be rolled back. There are probably enough people on both sides of the political divide of Republicans and Democrats, who will be reluctant to roll back the progress made on making the banking system safer since 2008.

On the earnings front, the focus will be on Twenty-First Century Fox as their Q2 figures are set to come out after the closing bell. Whilst the figures are expected to be positive, with EPS at $0.49 and revenue at $7.76bn, investors will be keener to hear news on whether the Sky bid is likely to succeed.

FX.

Despite a weak wages number on Friday the US dollar has experienced a sharp rebound, with one exception, slipping sharply against the Japanese yen to a new 2 month low at 111.99. The slide in US yields in the wake of Friday’s weak wages numbers appears to be weighing on the US dollar here, though this Friday’s scheduled meeting between Japan’s Prime Minister Abe and Donald Trump may also be a factor, prompting a paring of positions, given recent US criticism of Japanese monetary policy.

The euro has slipped back after some very dovish commentary from ECB President Mario Draghi in remarks to the European Parliament in which he stated that the ECB would look through transient price pressures. His overall tone gave the impression that whatever bond markets are telling us about rising inflation risks or the prospect of ECB tapering, the ECB isn’t even considering paring back stimulus at this point.

Commodities

Gold prices have continued their recent ascent as the prospect of rising political uncertainty; next to a cautious Federal Reserve send the yellow metal to its highest levels since November.

The announcement of new US sanctions on Iran appear don’t appear to have given any significant juice to the oil price, as they remain below their recent highs. Another big rise in US rig counts from 712 to 729 last Friday appears to be helping cap the upside, with new buyers reluctant to dive in at such elevated levels.

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