Monte dei Paschi bol­sters Euro­pean stocks

Kuwait Times - - BUSINESS -

LON­DON: Euro­pean shares fol­lowed Asian stocks higher yes­ter­day, buoyed by re­ports Italy would step in to res­cue trou­bled bank Monte dei Paschi and ex­pec­ta­tions the Euro­pean Cen­tral Bank would ex­tend its bond-buy­ing stim­u­lus scheme this week. Ital­ian gov­ern­ment bond yields fell, nar­row­ing the pre­mium in­vestors de­mand to hold them rather than bench­mark Ger­man debt, to its tight­est for about a month. The pan-Euro­pean STOXX 600 in­dex rose 0.8 per­cent, led by banks, and Italy’s FTSE MIB share in­dex gained 1.2 per­cent, hit­ting its high­est for six months.

Shares in Monte dei Paschi, Italy’s old­est bank and the fo­cus of in­vestor con­cerns over the coun­try’s bank­ing sec­tor, rose 9 per­cent. Reuters re­ported ex­clu­sively on Tues­day that Italy was pre­par­ing to take a 2-bil­lion-euro con­trol­ling stake in the bank as prospects of a pri­vate fund­ing res­cue faded fol­low­ing Prime Min­is­ter Mat­teo Renzi’s de­ci­sion to re­sign. In­vestors’ con­cerns were that a de­feat for Renzi in a ref­er­en­dum on con­sti­tu­tional re­forms could fur­ther un­der­mine faith in the Euro­pean Union - fol­low­ing Bri­tain’s de­ci­sion to quit the bloc - as well as con­fi­dence in the euro cur­rency.

Mar­ket re­ac­tion to Renzi’s de­feat and his res­ig­na­tions was rel­a­tively muted, partly as a con­se­quence of a pledge by the ECB to buy Ital­ian gov­ern­ment debt if mar­kets be­came un­set­tled. “De­spite the fact that the prob­a­bil­ity of early elec­tions has risen, the mar­ket is fo­cus­ing on the bank­ing sec­tor and the fact the gov­ern­ment seems to be show­ing more ur­gency in deal­ing with that prob­lem,” Mizuho strate­gist An­toine Bou­vet said. Ital­ian 10-year gov­ern­ment bond yields fell 6 ba­sis points (bps) to 1.92 per­cent yesters­day, hav­ing hit 2.17 per­cent in the run-up to the vote. Yields on Ger­man 10-year debt, the euro zone bench­mark, fell 1 bps to 0.36 per­cent.

The euro edged up 0.1 per­cent to $1.0730. It fell as low as $1.0505 on Mon­day in re­ac­tion to the ref­er­en­dum be­fore hit­ting a three-week high the same day. “Peo­ple had gone into the ref­er­en­dum with a very pes­simistic view and I think the last five years have taught us that, as far as the euro is con­cerned, po­lit­i­cal is­sues of­ten don’t have a last­ing im­pact,” DZ Bank cur­rency an­a­lyst Sonja Marten said. The dol­lar in­dex, which mea­sures the US cur­rency against a bas­ket of six of its ma­jor peers, was marginally down on the day. The yen fell 0.3 per­cent to 114.13 per dol­lar, ap­proach­ing a 10-month low.

Many mar­ket par­tic­i­pants were look­ing to the ECB’s pol­icy meet­ing to­day, at which it is widely ex­pected to an­nounce an ex­ten­sion of its quan­ti­ta­tive eas­ing pro­gram. Un­cer­tainty re­mains over whether the size of monthly pur­chases will be kept steady or scaled back, and over whether it will send a for­mal sig­nal on the even­tual end of the pro­gram. One of the big­gest movers in the cur­rency mar­kets was the Aus­tralian dol­lar, down 0.4 per­cent af­ter data showed the Aus­tralian econ­omy shrank by 0.5 per­cent, its big­gest con­trac­tion since 2008, in the third quar­ter.

Aus­tralian stocks, how­ever, closed 0.9 per­cent higher in an­tic­i­pa­tion of more fis­cal and mon­e­tary stim­u­lus. While rate fu­tures im­ply scant chance of a Re­serve Bank in­ter­est rate cut in the com­ing months, prospects of a hike van­ished. MSCI’s broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan rose 0.4 per­cent while Ja­pan’s Nikkei added 0.7 per­cent. Chi­nese shares gained 0.7 per­cent. China’s for­eign ex­change re­serves fell by more than ex­pected last month to $3.05 tril­lion, their low­est since 2011, the cen­tral bank said.

The yuan cur­rency last stood at 6.8850 to the dol­lar, com­pared to a mid-point of 6.8808 set by the cen­tral bank. The cur­rency is down 5 per­cent so far this year. Oil prices fell as in­vestors ques­tioned whether a deal to cut out­put agreed last week by the Or­ga­ni­za­tion of the Petroleum Ex­port­ing Coun­tries (OPEC) and oth­ers would be enough to drain that global glut that has pushed prices lower. Brent crude, the in­ter­na­tional bench­mark, fell 30 cents to $53.63 a bar­rel. “In­vestors are torn be­tween hopes that pro­duc­ers will cut enough pro­duc­tion to bal­ance sup­ply and de­mand, and fears that they won’t,” bro­ker­age PVM Oil As­so­ci­ates’ se­nior an­a­lyst, Ta­mas Varga, said.

— AP

TOKYO: Peo­ple are re­flected on the elec­tronic stock in­di­ca­tor of a se­cu­ri­ties firm in Tokyo.

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