Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

One Bank Bailout Is Never Enough

Published 06/26/2017, 01:05 PM
Updated 04/25/2018, 04:10 AM

Stock price ticker boards were filled with green on Monday. Bank stocks led the gains after the state rescue of two lenders in Italy. The highest reading on record for the IFO survey, a German business-sentiment index added to investor confidence. Germany's DAX stock index jumped to a record high after the positive data surprise. Confidence this high in the last week of the second quarter is a good indication economic growth in Europe could accelerate further in the third.

Senior bonds in the banks leaped after the rescue deal. For some unimaginable reason, bondholders seem to prefer taxpayers funding the purchase of bad loans over losing their investments. Although two small regional banks basically just went belly up and shareholders were wiped out, it was the shares of similarly-sized banks that outperformed. The logic is quite sound. Italy has just shown the age of bailouts is not over. That significantly reduces the risk of an investment in a bank going sour.

Italy’s FTSE MIB was the best-performing equity index in Europe following the bank bailouts. The high concentration of banks in the FTSE 100 allowed a rise in Britain’s benchmark despite some modest strength in the pound. The muted reaction in retail shares to the purchase of health store chain Holland & Barret is perhaps owed to concern at competition from Amazon.com (NASDAQ:AMZN) across the sector. Shares of both Rio Tinto (NYSE:RIO) and Glencore (LON:GLEN) rose after Rio announced it prefers Yancoal's (AX:YAL) further improved offer of $2.69B for its thermal coal assets. Consumer goods shares including Unilever (NYSE:UN) were in demand after activist investor Daniel Loeb's Third Point hedge fund took a $3.5B stake in Nestle (SIX:NESN).

Stocks in the US rose to near record levels in early trading buoyed by the ongoing recovery in tech stocks. Reportedly Facebook (NASDAQ:FB) is talking to Hollywood studios about producing original TV programming by late summer. At the same time US durable goods orders fell 1.1% in May. The transfer of power from old industry to new technology is powering the rise in tech stocks.

The British pound rose as Theresa May scraped together a coalition deal-of-sorts with Ireland’s DUP. Brexit talks focused on the rights of UK and European citizens abroad, a concern for many businesses, left currency traders disinterested.

Gold prices slumped heavily in early European trading, with a large number of contracts dumped onto the market shortly after the German IFO data. Gold has been steadily losing its appeal as Europe and the US emerge unscathed from political upset.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.