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Italian banks: Monte Paschi will attempt to sell shares next week
Banca Monte dei Paschi di Siena sell shares as part of efforts to raise 5 billion euros of capital before Christmas
German IFO says US interest rate decision having indirect impact on sentiment
German IFO economist with comments further to report release 19 Dec
Italy Paves Way for a $21 Billion Rescue Plan for Ailing Banks
The Italian government cleared the way for the potential rescue of lenders, including Banca Monte dei Paschi di Siena SpA, by seeking permission from parliament to increase the nation's public debt by as much as 20 billion euros ($21 billion).
Top 5 Things to Know in the Market on Tuesday
1. Dollar bounces back towards 14-year high
The dollar was bouncing back toward its 14-year high against a basket of major currencies on Tuesday with markets focused on the possibility of further U.S. interest rate hikes next year.
The dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.25% at 103.33 by 6:00AM ET (11:00GMT), coming within sight of its 14-year peak of 103.55 touched last week.
Optimistic remarks on the U.S. labor market by Federal Reserve Chair Janet Yellen strengthened the possibility of further rate hikes next year.
Speaking at the University of Baltimore’s midyear commencement ceremony Monday, Yellen said recent improvements in the economy have created one of the strongest job markets in years for graduates.
The speech came a few days after the U.S. central bank hiked interest rates for the first time in a year and projected three more increases in 2017, up from the two projected in September.
2. Yen slumps towards 10-month low after BOJ
The dollar climbed 0.8% to 118.06 against the yen, as fresh buying emerged after the Bank of Japan kept monetary policy unchanged at its final meeting of the year on Tuesday.
The BOJ affirmed its twin targets of minus 0.10% interest on some excess reserves and the 0.0% 10-year government bond yield. The central bank also raised its assessment of the economy for the first time since May 2015, noting that “exports have picked up.”
3. Euro falls near 2003 low
The euro slipped 0.2% to 1.0381 against the dollar, edging near last week's low of 1.0365, its weakest level since January 2003, in the wake of two separate deadly incidents in Turkey and Germany.
The Russian ambassador to Turkey, Andrei Karlov, was shot and killed at an art gallery in the Turkish capital of Ankara Monday evening.
A few hours later, a truck plowed into a crowded Christmas market in central Berlin, killing 12 people and injuring up to 50 others in what Germany officials said looked like a terror attack.
4. Global stock markets push higher as holiday season approaches
U.S. stock markets pointed to modest gains at the open on Tuesday morning, with the Dow inching closer to the 20,000 mark in pre-holiday trade ahead of a slew of earnings.
Darden Restaurants (NYSE:DRI), General Mills (NYSE:GIS) and Blackberry (TO:BB) are all set to report before the bell. FedEx (NYSE:FDX) and Nike (NYSE:NKE) are due to report after the bell.
There are no major U.S. economic data releases scheduled for Tuesday.
Meanwhile, European stocks moved mostly higher in mid-morning trade, with Italian banks among the biggest gainers after news the country’s government is preparing a potential €20 billion rescue package for struggling lenders.
In Asia, the Shanghai Composite in China closed 0.5% lower, while the Nikkei in Japan closed 0.5% higher.
5. Oil edges higher amidst low volume trade
Oil prices held below 17-month highs on Tuesday, as traders awaited further clarity on whether major crude producers will stick to their promise to pull back on output.
Brent tacked on 30 cents, or 0.55%, to $55.22 a barrel, not far from a 17-month high of $57.89 touched last week.
U.S. crude was up 10 cents, or 0.2%, to $53.16, within sight of a one-and-a-half-year peak of $54.51 logged on December 12.
OPEC members agreed to reduce output by a combined 1.2 million barrels per day starting from January 1, their first such deal since 2008.
The pact was followed by an agreement from 11 non-OPEC producers, led by Russia, to cut their supplies by 558,000 barrels a day.
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Though the Dow Jones logged a new record intraday and closing high on Tuesday, the blue-chip index fell just short of hitting 20,000 points, reaching 19,987.63.
If the blue-chip index were able to hit the mark in Wednesday’s session, it would be the fastest 1,000 point move from one triple-zero number to another, as the Dow hit 19,000 points just 20 trading days ago on November 22.
Wall Street has undergone a strong rally since Donald Trump won the U.S. presidency, pocketing gains of around 9% on bets that the incoming leader would implement policies to spur economic growth.
2. European banks under pressure as BMPS tanks, Spanish lenders hit
Troubled Italian bank Monte dei Paschi (MI:BMPS) sank more than 8% on Wednesday as problems continued to surface. The world's oldest bank admitted it only had four months of liquidity left and the likelihood of success of its debt to equity swap looked grim, with only about the half the offer taken up.
Spanish banks weren’t without their own problems, leading Madrid’s stock market lower, after the European Court of Justice overturned a ruling limiting the lenders’ liabilities over “floor clauses” that limited the minimum drop on mortgage interest rates.
The Spanish Supreme Court had limited the amount of damage, but the European court determined that the amount of protection was “incomplete and insufficient”. According to the country’s central bank, the ruling could result in the need for Spanish banks to return between €5 and €7 billion ($5.2 and $7.3 billion) to customers.
3. Oils prices continue to rally ahead of crude inventory data
Oil prices rose for the fourth session in a row on Wednesday, as market players awaited fresh weekly information on U.S. stockpiles of crude and refined products.
After markets closed Tuesday, the American Petroleum Institute said that U.S. oil inventories fell by 4.1 million barrels in the week ended December 16, more than the expected 2.4 million barrels decline and marking the fourth draw in the last five weeks.
The U.S. Energy Information Administration will release its weekly report on oil supplies at 10:30AM ET (15:30GMT) Wednesday, amid analyst expectations for a decline of 2.5 million barrels.
U.S. crude oil futures gained 0.41% to $53.52 at 5:57AM ET (10:57GMT), while Brent oil traded up 0.42% to $55.58.
4. Global stocks mixed on weaker dollar, European bank concerns
Asian shares closed with mixed signs, as the Nikkei 225 pulled away from a one-year peak after the dollar underwent profit-taking.
European stocks were also registering mixed readings in light pre-Christmas trade as concerns over the Italian and Spanish financial sector weighed on banking sentiment.
U.S. stock futures pointed to a flat open on Wednesday as investors eyed the 20,000 point level in a light economic calendar day that would see only the release of November existing home sales. At 5:58AM ET (10:58GMT), the blue-chip Dow futures inched up 12 points, or 0.06%, S&P 500 futures slipped less than a point, or 0.01%, and the Nasdaq 100 futures edged up less than a point, or 0.01%.
5. Profit-taking in dollar pushes gold higher
Investors opted to take profit in the dollar on Wednesday, though the greenback held near 14-year highs against major rivals.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down 0.12% at 103.13 by 5:59AM ET (10:59GMT).
The move lower in the American currency boosted gold prices, as it increases the metal's appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery were up 0.22% at $1,136.15 by 5:59AM ET (10:59GMT), still hovering near 11-month lows.
Prices of the yellow metal sank to $1,124.30 last week, a level not seen since February 2.
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Italian cabinet meeting underway to discuss rescue plan for Monte Dei Paschi
Reuters reporting
Italian cabinet approves decree to support banks
Cabinet was meeting re bailing out Monte dei Paschi
Qatari's Pull Out of Saving Italian Bank Due to Political Risks; Outlook for Euro Worsens
After fighting for its life, the oldest bank in Italy got the thumbs down from investors on Wednesday, when the felled lender’s cries for help fell on deaf ears.
A deal to save Banco Monte dei Paschi di Siena collapsed after the ‘anchor investor’ the Qatari Sovereign Wealth Fund pulled out in the final stages.
The Qatari’s had been expected to invest 1bn in the failing bank, however, they withdrew after deciding the investment carried too much risk.
The failure of the deal was seen as having as much to do with the increased political risk in Italy since the referendum as about the quality of Monte dei Paschi’s balance sheet, or the outlook for Italian banking as a whole, according to the Guardian’s Nils Pratly.
“It ought to be possible for a bank founded in 1472 to shuffle off its bad loans, even at depressed prices, overcome its foolish acquisitions from the boom years and regain a profitable niche, “ commented Pratly.
“The critical sum at stake in the recapitalisation plan – €5bn – was not off the scale and JP Morgan, the Wall Street powerhouse advising MPS, was on hand to round up a few so-called anchor investors,” he added.
What the failure appears to have brought into relief is how much of a concern Italy’s uncertain political future is for outside investors.
In an attempt to explain the failed rather modest bailout deal, Pratly goes on to say:
“The immediate reason (for the failed bailout) is that the anchor investors, supposedly from Qatar and China, have got cold feet.
“But the other trigger was the landslide defeat for prime minister Matteo Renzi in the referendum on constitutional reform. That reopened the debate about Italy’s long-term future in the Eurozone. Until the elections are held and the political picture clears, investors seem to have decided that Italy is not a place to take a high-risk bet.”
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1. Dollar inches higher in light holiday season trade
The U.S. dollar edged slightly higher against the other major currencies after the long Christmas weekend on Tuesday, holding near the strongest level since December 2002 as the market entered the last trading stretch of the year.Trading activity was likely to stay subdued as many investors already closed books before the end of the year, reducing liquidity in the market.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 103.03 by 5:50AM ET (10:50GMT), not far from last week's 14-year peak of 103.62.
Against the yen, the dollar was up 0.2% at 117.33, compared to a 10-1/2 month high of 118.65 set last week.
Meanwhile, the euro was little changed against the greenback at 1.0450, hovering above last week's 13-year low of 1.0352.
Elsewhere, the British pound was steady at around 1.2270 against the dollar, within sight of a seven-week low of 1.2229 touched late last week.
U.S. stock markets pointed to a flat to slightly lower open on Tuesday morning, with the Dow holding within sight of the psychologically important milestone of 20,000.2. Global stocks mixed after holiday weekend
Meanwhile, European stocks struggled for direction in quiet mid-morning trade, amid thin volumes during the holiday period in the region.
In Asia, markets ended mixed, with the Shanghai Composite in China closing 0.25% lower, while the Nikkei in Japan ended little changed.
The U.S. Conference Board is to publish data on December consumer confidence at 10:00AM ET (15:00GMT) Tuesday, with market players expecting the index to rise to 108.5 from 107.1 a month earlier.3. U.S. consumer confidence data in focus
If confirmed it would be the strongest reading since July 2007, fueling optimism over the health of the economy and supporting expectations of higher interest rates in the months ahead.
Tuesday will also see the release of the S&P Case-Shiller HPI, due out at 9:00AM ET (14:00GMT). In addition, the Richmond Fed survey is to be released at 10:00AM ET, followed by the Dallas Fed survey at 10:30AM ET.
Investors contemplated the future of Banca Monte dei Paschi di Siena (MI:BMPS) after the European Central Bank told the embattled Italian lender that it needs to plug an €8.8 billion ($9.2 billion) capital shortfall, higher than a previous €5 billion gap estimated by the bank.4. ECB tells Monte dei Paschi it needs to raise €8.8 billion
Meanwhile, ECB policymaker Jens Weidmann said Monday that plans for a government bailout will need to be approved by the European Union to ensure state-aid rules aren’t breached.
Last Friday the Italian government approved a €20 billion aid package to bail out Monte dei Paschi after the bank failed to pull off a last-ditch private €5 billion recapitalization.
Oil prices firmed amid thinning pre-New Year holiday trade on Tuesday, less than a week before major global oil producers scale back production in line with the deal they struck last month.5. Oil firms with output cut deal in sight
OPEC members agreed to reduce output by a combined 1.2 million barrels per day starting from January 1, their first such deal since 2008.
The pact was followed by an agreement from 11 non-OPEC producers, led by Russia, to cut their supplies by 558,000 barrels a day, bringing the total to almost 1.8 million barrels per day.
However, some traders remain skeptical that the planned cuts will be as substantial as the market currently expects.
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Oil prices extended strong overnight gains amid thinning pre-New Year holiday trade on Wednesday, less than a week before major global oil producers begin to scale back production in line with the deal they struck last month.
Despite low volume, crude was on track to log a 9-day winning streak on Wednesday, its longest since January 2010.
OPEC members agreed to reduce output by a combined 1.2 million barrels per day starting from January 1, their first such deal since 2008.
The pact was followed by an agreement from 11 non-OPEC producers, led by Russia, to cut their supplies by 558,000 barrels a day, bringing the total to almost 1.8 million barrels per day.
Optimism over the deal continued on Wednesday ahead of a report on weekly U.S. crude inventories from the American Petroleum Institute (API) out later in the session, followed by the official report from the U.S. Energy Information Administration (EIA) on Thursday.
The reports are released one day later than normal due to last Monday’s holiday.
U.S. crude oil futures gained 0.46% to $54.15 at 6:20AM ET (11:20GMT), while Brent oil traded up 0.56% to $57.15.
2. Trump takes credit for consumer confidence in “wait-and-see” context
In a late night tweet, President-elect Donald Trump took credit for the rise in U.S. consumer confidence to its highest level in more than 15 years, as investors prepared to once again face the psychological 20,000 point level in the Dow Jones.
The blue-chip index has gained around 9% since the November 8 election day market close in what many analysts refer to as the “Trump rally” on the back of hopes that the incoming president will implement fiscal policies that will spur growth and be positive for stocks.
However, market participants have balked at the psychologically important 20,000 point level, with experts suggesting that Trump will need to follow through on expectations in order for stocks to be able to maintain the upward momentum.
“Looking ahead to 2017, consumers’ continued optimism will depend on whether or not their expectations are realized,” the report on confidence that Trump cited pointed out on Tuesday, referring to the follow-through on the post-election surge in optimism.
With many traders still on holidays, the metaphor could aptly be applied to investor sentiment for the New Year.
With the Dow still below the all-time high reached on December 20 of 19,987.63 points, U.S. futures pointed to a higher open on Wednesday. At 6:23AM ET (11:23GMT), the blue-chip Dow futures gained 0.15%, S&P 500 futures traded up 0.19% and the Nasdaq 100 futures rose 0.26%.
3. Dollar continues upward move with eyes on Trump and data
The U.S. dollar moved higher against major rivals for a second-day running on Wednesday as the prior day’s positive read on consumer sentiment continued to support the greenback.
Hopes that policy moves by the incoming Trump Administration would not only spur economic growth, but accelerate inflation, leading to further rate hikes by the Federal Reserve in 2017, led to close to a 6% rally in the dollar since the U.S. election in early November.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.31% at 103.33 by 6:26AM ET (11:26GMT).
With only the November pending home sales on Wednesday’s economic docket, investors were looking ahead to the U.S. employment report on January 6 as the major data that could shift sentiment in the American currency.
4. Toshiba crashes 20%, wiping $5 billion off stock value
Toshiba Corp. (T:6502) said late Tuesday that cost overruns at the U.S. nuclear business CB&I that it bought last year meant it could face “several billion dollars” in a write down.
The news sent its shares down 20%, hitting the Tokyo stock exchange’s daily downward limit and following a 12% drop the prior day after initial warnings were made.
The two day loss wiped out about $5 billion in the Japanese conglomerate’s stock value, taking it below its rival Sharp for the first time in seven years.
Rating agency Standard & Poor's downgraded Toshiba, already in junk territory, to B- from B, with a "negative" outlook.
5. China bank regulator official urges cut in required reserve ratio
China Banking Regulatory Commission official Yu Xuejun said on Wednesday that the requirement for the amount of cash reserves Chinese banks must hold was “very high” and insisted that it should be reduced at the “appropriate time”, according to a report from Shanghai Securities News.
The People’s Bank of China (PBOC) has kept the required reserve ratio (RRR) at 17% since last February after four reductions in 2016.
Lowering the RRR allows banks to lend out more money, increasing credit expansion.
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