Deal over failed banks boosts European shares

SHARES rose in Europe yesterday, with Italian banks gaining after a deal to wind up two failed lenders, while the dollar and US bond yields held close to recent lows as subdued inflation raised questions over the outlook for monetary policy.

The-pan-European STOXX 600 share index rose 0.8%, led higher by banks after the agreement in terms of which Italy’s largest retail bank, Intesa Sanpaolo, will take on the remaining good assets of collapsed Popolare di Vicenza and Veneto Banca.

The Italian government will pay it €5.2 billion (R74.8bn) and give it guarantees of up to a further €12bn.

Investors have long viewed the Italian banking sector as a major cause of fragility within the euro zone.

An index of Italian banks was up 2.7%, and the broader Milan market rose 1.5%.

Italian 10-year government bond yields fell four basis points (bps) to 1.88%, narrowing the gap over benchmark German equivalents to 164 bps.

Greece’s 10-year yields fell to their lowest since 2009 after Moody’s upgraded its credit rating on Friday.

MSCI’s broadest index of Asia-Pacific shares outside Japan ticked up 0.6% as technology stocks led gains.

Trading was slow, with many markets in the region closed for holidays to celebrate the end of Ramadaan.

Mainland Chinese shares rallied, with the CSI300 index rising 1.2% to its highest level in almost 18 months, after MSCI said the index provider could raise its weighting of China’s mainland-listed “A” shares.

The euro fell 0.1% to $1.1185, with the dollar edging up 0.1% as the gap between short- and longer-dated US government bond yields held close to recent 10-year lows hit on signs that inflation is likely to remain subdued.

Sterling, on the up since more Bank of England policymakers have either called or said they are likely to call for higher interest rates, rose 0.3% to $1.2733.

A major cause of lower inflation globally has been a fall in oil prices in recent weeks on signs that an agreement by producers that belong to the Organisation of Petroleum Exporting Countries is failing to curb a global glut of crude.

Brent crude, the international benchmark, rose 12 cents to $45.66. Oil prices are down about 13% since late May.

Gold fell to its lowest in almost six weeks. Dealers cited the stronger dollar and a large sell order. – Reuters