European stocks halted two days of declines, with the Stoxx 600 fractionally in the green and Italy’s bonds climbing after Monte Paschi requested a bailout and Italy pledged to provide support for its other ailing lenders. S&P futures were little changed among extremely thin volumes while Chinese stocks dropped amid concerns on higher borrowing costs. Oil slid, while gold advanced; bitcoin soared to multi-year highs, rising above $900.
The biggest financial story, in addition to the expected Deutsche Bank and Credit Suisse settlements, was the nationalization of Italy's Monte Paschi and the country's backstop of further bailouts with a new €20 billion fund set aside to fund additional bank rescues. As a result, Italian 10-year bonds lead gains among major European securities after the government said it will plow as much as 20 billion euros ($21 billion) into the country’s banks and Banca Monte dei Paschi di Siena SpA said it will ask for a “precautionary” capital increase. Deutsche Bank AG also rose after the lender agreed to settle U.S. mortgage probes. “It’ll be a relief to investors,” George Boubouras, the chief investment officer of Melbourne-based Contango Asset Management Ltd., told Bloomberg.
Following last night's nationalization request, Monte Paschi shares have been suspended from trading.
"Banks run the show today," analysts at Kepler Chevreux said in a note to clients, adding that the newsflow around Italian lenders was turning positive.
Deutsche Bank's $7.2 billion settlement with the U.S. Department of Justice over toxic mortgage securities sold in the run-up to the 2008 financial crisis was nearly half of the fine initially levied in September. Deutsche Banks shares rose 2.7 percent and are up 86 percent since September lows. Credit Suisse fell 0.6%, giving up earlier gains, after it agreed to pay $5.3 billion to the DOJ to settle similar charges. Barclays became the latest in a long-list of other lenders under investigation to be sued.
The bank sector news helped the Stoxx Europe 600 Index hold this month’s 5.3% rally that has taken it within 1.6% of wiping out its losses for the year.
In the U.S., a rally that took indexes to a record stalled as the Dow Jones Industrial Average neared 20,000 and as trading wound down before December holidays. In the last day of trading before Christmas in Europe, stock volumes were about 40% lower than the 30-day average. , Japanese markets were closed today for Emperor's Birthday holiday.
The dollar headed into the Christmas break on Friday just over half a percent off highs hit after this month’s U.S. Federal Reserve policy meeting. The dollar is up more than 7 percent against a basket of currencies since lows hit on U.S. election night in November but has been flat for the past week. The dollar index .DXY, hovering near a 14-year high, was marginally lower at 103.03 but remained within striking distance of the week's 103.65 peak.
In bonds, Italian 10-year yields declined four basis points to 1.81 percent, while German bund yields slid one basis point to 0.25 percent. Treasuries were little changed after 10-year yield climbed two basis points to 2.55 percent on Thursday.
The UK economy expanded at a 0.6 percent pace in the three months to September, faster than the original estimate of 0.5 percent, suggesting there has been no "Brexit" hit to economic activity so far since the June 23 vote to leave the European Union.
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Market Snapshot
- S&P 500 futures unchanged at 2259
- Stoxx 600 up less than 0.1% to 360
- FTSE 100 down less than 0.1% to 7061
- DAX up 0.1% to 11468
- German 10Yr yield down 1bp to 0.25%
- Italian 10Yr yield down 5bps to 1.8%
- Spanish 10Yr yield down 1bp to 1.39%
- S&P GSCI Index down 0.4% to 390.6
- MSCI Asia Pacific down 0.2% to 135
- Nikkei 225 closed
- Hang Seng down 0.3% to 21575
- Shanghai Composite down 0.9% to 3110
- S&P/ASX 200 down 0.3% to 5628
- US 10-yr yield down less than 1bp to 2.54%
- Dollar Index down 0.11% to 102.98
- WTI Crude futures down 0.6% to $52.64
- Brent Futures down 0.6% to $54.74
- Gold spot up 0.2% to $1,131
- Silver spot up 0.1% to $15.82
Top Headline News
- Paschi Seeks State Aid as Italy Readies $21 Billion for Banks: Monte Paschi recapitalization effort misses bank’s target
- Deutsche Bank, Credit Suisse Settle U.S. Probes as Barclays Sued: Banks pay $12.5b to end probe into sales of toxic debt
- Boeing-Versus-Lockheed Fighter Rivalry Reopened by Trump Tweet: Trump said he wants Boeing to price out F-35 competitor
- Exxon Norway Assets Said to Attract Aker BP, Hitec, Neptune: Offshore oil fields said to be valued at about $1 billion
- Merck’s Ebola Vaccine Found to Protect Against Deadly Virus: Vaccine was studied in trial involving >11,000 people in Guinea
- Fred’s Attracts Activist as Alden Unveils 25% Stake on Deal: Alden also running activist campaign at retailer Pier 1 Imports
- MegaFon to Buy Mail.ru Stake for $740 Million From Usmanov: Wireless carrier gains control of 63.8% of web company’s votes
Looking at Asian markets, stocks traded subdued following the negative lead from the US, where the 20,000 level continued to elude the DJIA, with markets very quiet amid the absence of Japan and ahead of Christmas holidays. 9 out of 11 sectors decline in the MSCI Asia Pacific Index with information technology, materials underperforming and utilities, industrials outperforming “Looking at the last few days, from a technical perspective we’ve seen this move up on lighter volume and it seems like all the buying pressure has been exhausted,” said James Woods, a Sydney-based investment analyst at Rivkin Securities, with regards to the A&P/ASX 200 Index. ASX 200 (-0.3%) was led lower by basic material names after iron prices declined around 4% to a 3-week low, with trade also light ahead of the upcoming 4-day weekend. Shanghai Comp. (-0.9%) and Hang Seng Index (-0.2%) were negative despite the PBoC attempting to ease liquidity concerns by injecting more funds this week, as prospects of tighter regulation on investments by insurers and brokerages dampened risk sentiment. Finally, Japanese markets were shut today for the Emperor's Birthday holiday. PBoC injected CNY 90bIn 7-day reverse repos, CNY 50bIn in 14-day reverse repos, CNY 5bIn in 28-day reverse repos for a net weekly injection of CNY 375b1n vs. previous injection of CNY 250b1n last week. PBoC set the mid-point at 6.9463. China is said to regulate alternative investments by brokerages, according to press reports.
Top Asian News:
- Saipan Casino Bond on Hold Risks Future of $7 Billion Resort: Imperial Pacific issuance to fund casino said to be shelved
- World’s Worst Air Has Mongolians Seeing Red, Planning Action: Dec. 26 action set amid smog five times worse than Beijing
- A Goldman You’ve Never Heard of Is Pursuing a Hong Kong IPO: Local electrical subcontractor adopted Goldman name last month
In Europe, the final quiet start before the Christmas break has seen European equities trade higher this morning (Euro Stoxx: +0.2%), with Deutsche Bank (+2.3%) leading the charge after reaching a settlement of USD 7.2bIn with the DoJ (vs. USD 14bIn initially requested). Credit Suisse (-0.6%) also reached an agreement with the DoJ although failed to see quite the same upside, while Barclays (-1.2%) rejected a fine and as such are facing litigation. Today is one of the few days in 2016 where Banca Monte dei Paschi are not leading the way higher/lower across equities...given that they are suspended from trade after failing to raise sufficient funds through their recapitalisation plans and as such will receive state aid. Elsewhere, fixed income markets have continued the subdued trade seen throughout the week. Bunds have traded flat so far today, with Gilt futures seeing modest outperformance, with the move coming in tandem with softness being seen in GBP.
Top European News:
- NN Group to Buy Dutch Rival Delta Lloyd for $2.6 Billion: Delta Lloyd returned to profit in first half after cost cuts
- U.K. Current-Account Deficit Widens; GDP Growth Revised Up: Higher: 3Q trade deficit widnens to 2.8% of GDP, most since 2013
- Brexit Shapes Up to Be ‘Hard’ 6 Months After Vote, Academics Say: EU is playing ‘hardball’ with U.K. in divorce proceedings
In currencies, the euro advanced for a third day against the dollar, adding 0.2 percent to $1.0455. The pound rebounded from the lowest level since Nov. 2 versus the greenback after data showed the U.K. economy expanded more than initially reported in the third quarter. The currency was little changed at $1.2277, after earlier touching $1.2246. Little to note elsewhere as the remnants of the market look to wind down for the Xmas break. The lead EUR/USD and USD/JPY rates are trading in extremely tight ranges, but some very modest USD tiredness to note ahead of the break. Weakness in the commodity currencies also subsides, but little to glean from today's price action.
In commodities, gold edged higher in London trading, adding 0.3 percent to $1,131.74 an ounce. It’s still set for a seventh week of declines. West Texas Intermediate crude for February delivery in New York fell 0.6 percent to $52.66 a barrel.
US Event Calendar
- 10am: New Home Sales, Nov., est. 575k (prior 563k)
- 10am: U. of Mich. Sentiment, Dec. F, est. 98.0 (prior 98.0)
- 1pm: Baker Hughes rig count