Stocks rebound on Greek deal Italian banking plummet confuses traders

Stocks across Europe sharply rebounded yesterdays heavy losses on news late last night of a deal between Greece and the EU and IMF on extra tax rises and spending cuts to help plug a revenue shortfall and smooth over their ties with international lenders to secure the next tranche of loans and a potential second bailout.

Investors are still likely to trade sensitively to the situation into the next week and will likely watch for any clues over the weekend as to how the new austerity legislation may proceed in the Greek parliament.

It seems that this week Greece has heeded the stark warning posed by the EU earlier this week of the necessity to pass through its new austerity package and certainly in the last few days it would appear that the country is treading along the right path to a successful secure of loans and aid from the EU and IMF in July.

Greece at the half way stage of a defining fortnight
Greece is half way through what is turning out to be a defining fortnight for the country and potentially the eurozone. The week has finishedwell, with Greece seemingly adhering to the conditions set out by the EU andIMF. Next week is however going to be the crucial week, where words needs to be translated into action and this starts with a successful vote on Greece’s new austerity package in the Greek parliament.

Italian banking plummet causes confusion 
A sudden and sharp slump in the prices of several Italian banks and suspension of trading for banks such as UniCredit forced the Italian Mib lower by 2% at one point on Friday, having started the day in positive territory, before a small recovery. The slump served to heighten tension in broader European trade.

Borsa Italiana said that the reason for suspending share prices of some banks was due to high volatility but the issue which troubled traders most on Friday and damaged sentiment was the unknown reasons behind the added volatility.

Shares of banks Intesa Sanpaolo and UniCredit fell as much as 9% in a matter of minutes without many traders knowing the reasons behind the falls, escalating uncertainty. There remains a clouded aspect to the falls with traders speculating potential factors could be rumours of a credit downgrade for several Italian banks. Some murmurs in the market also noted fears that some Italian banks may have failed stress tests due out on July 13th or whilst others questioned the fragility of demand for UBIBanca’s rights issue which expired today.

Certainly trading in Italian banks has been on edge all day as a consequence, whilst the warning from Moody’s on Thursday that some Italian banks could be set for a credit downgrade is likely to have laid the foundation for this.