Calmer Italy sends soothing waves across global shares

Italy’s banking sector is having its best day in over a month.

Summary

Italy’s banking sector is having its best day in over a month.

Earnings, Italian calm hold back a tide

Markets can thank a batch of better-received earnings from the likes of Lloyds Banking Group, UBS and Daimler for bolstering the European stock market stabilisation that stems from Italy’s banking sector, which is having its best day in over a month. Calming waves are emanated to surrounding markets. Similar signs to those that supposedly triggered Wednesday’s sudden flight from risk are everywhere though. In some cases, like WPP’s, essential causes appear to be structural, pre-existing current global economic conditions. But other cases, like AB InBev’s play to similar narratives like the one that Boeing alluded to. The world’s largest brewer reported declines in its second-biggest market, Brazil, partly due to static disposable income growth. A similar picture in South Africa, with added hints of supply chain stress. These and other enough intimations of dollar funding pain and trade conflict fall-out, are enough to keep bears present. Offshore yuan falling to two-month lows and the frontier of a potential move to psychologically charged 7 yuan per dollar, also underscores the impression that risk aversion could soon move beyond recent norms.

Technical analysis chart: USD/CNH – daily intervals -  12.30 BST 25.10.2018

Source: Refinitiv/City Index

Twitter users fall in line

Steadier oil prices add to the appearance of floors having been found, providing a cut-off point for selling heavyweight oil shares, which often make or break index rallies on the day. The chief reason the FTSE 100 stands out on the downside is WPP’s protracted woes that drag that share as much as 20% lower. There’s an air of kitchen-sinking to disclosures following the appointment of a new CEO last month. Elsewhere, stock market rebounds were intact into the ECB press conference. The central bank’s anodyne statement before the briefing also allows the euro to continue drifting higher. Similarly, the built-in pause in European Commission procedure means that few material developments are likely during a period of consideration after the unprecedented rejection of Italy’s budget proposals. In the meantime, the government’s pledge to step in with support for banks and other companies if needed also deflates yields and spreads and creates some headroom for shares. For Wall Street, the sigh of relief breathed by Twitter shareholders—worth about 15% in pre-opening orders—allows a tick in the ‘growth’ box that high-profile consumer web firms reporting this week need to help mollify growth concerns. Monthly active users fell in line with guidance of a “high single-digit millions” amount. Earnings and revenues beat expectations. In any case, Wednesday’s safety bid for Treasurys pressured yields somewhat lower from worrying levels; another plus for buyers of high-beta, high-rating shares, many of which trade on the Nasdaq. December futures for that market are firm. But the jury’s out as to whether Wednesday’s move into correction territory was enough to recalibrate sentiment to new prevailing realities.


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