The tsunami caused by Brexit is slowing down, at least in Asia. The pound still loses out on the Asian markets (-2,2% against the yen) but, thanks to the intervention of the central banks, both the fall of the British currency (1,3377 to its lowest level in 31 years) and of the euro (- 1,1%) are currently under control. The Tokyo Stock Exchange recovers (+1,9%) after Friday's collapse (-7,9%), pending measures to curb the yen's run. Limit the reactions of the Chinese markets and the rest of Asia.
Gold is still growing strongly, at 1,324,69 dollars an ounce (+0,7%). But the spotlights are already on the opening of London: futures signal new widespread declines both in the City (-170 points to 5 points) and in other European markets. The air is bad for Wall Street too. Today's session, the experts explain, will be dominated by the sales of automatic trading, which will review positions in the light of Friday's declines.
SPAIN, UNCERTAINTY REMAINS. EUROPE'S BIG CONSULT ON BREXIT
The Spanish puzzle also contributes to complicate the picture. The elections they have not resolved the issue of governance. The Popular Party (33%) is advancing, but not enough, ahead of the Socialists (22,7%) who have however avoided overtaking Podemos (21,1%): the populist wave has not made it through.
We start again after a nightmare Friday, in which 2.100 billion dollars of stock market value went up in smoke. We start again, but in reality no one has pulled the plug over the weekend. The central bankers, the finance ministers and the heads of the Monetary Fund have not done so, in constant contact to guarantee the liquidity reserves necessary to prevent the crisis from degenerating into a recession. Meanwhile, conflicting signals are coming from politics. Today Italy, France and Germany will have to draw up a common line towards Great Britain. Meanwhile in London, David Cameron stalls on Brexit, but Scotland's anger is rising, threatening its veto power over the decision.
FINANCE, THE BIG MOVE FROM THE CITY ALREADY UNDERWAY
The tensions are unloaded above all on the banking sector. In London, preparations are being made for a collective move from the City which could trigger a dramatic domino effect: a large part of the strongest banking community in the world has in fact suddenly found itself without a financial passport. In Milan, thousands of e-mails sent from the big banks to account holders and savers to recommend prudence and advise against hasty sales. But there are also those, like Banca Mediolanum, who have presented the current emergency as a buying opportunity to be seized without hesitation, in the face of the fear that reigns among operators.
ITALIAN BANKS IN THE TRENCH TODAY: THE BAIL-IN CONTRIBUTION HAS A WEIGHING
The stability of the Italian banking system is in fact one of the key issues these days. On Friday Unicredit sank by 23,7%, Intesa (-22,9%) and Mediobanca (-21%) did little better. Monte Paschi suffered a drop of 16% while, among cooperative banks, the declines were between -24% for Pop.Emilia and -20% for Ubi. The shock also affected the rest of the European sector, but the impact on Piazza Affari was aggravated by the previous losses: since the beginning of the year Unicredit and Monte Paschi have left 70% on the ground, Intesa, the most solid stock, 40% . The crisis in the banking sector is the first cause of the decline of Pizza Affari: -12,4% on Friday, the worst decline in a single day since the existence of the Ftse Mib index (year 1998). Since the beginning of the year the performance is -26%.
In short, the banks are distrusted by the Italian system, burdened by a public debt that has not decreased (indeed it is still marginally increasing) despite years of falling rates, the interventions of the ECB (every month 10 billion purchases of Btp ) and the contribution of Ltro loans. Mario Draghi's action prevented a full-fledged assault on public debt (as in 2011/12) but nothing can do in the face of substandard and non-performing loans (200 billion) which weigh on the country's institutions, so far reluctant to sell non-performing loans loans.
According to Francesco Giavazzi, a system intervention cannot be excluded, to be agreed with the European Union perhaps through the intervention of the Salva Stati Stati fund. The opinion of Carlo Messina, CEO of Intesa, is quite different: the system is solid, but held back by "stupid rules" which hinder, for example, the single guarantee on deposits, necessary to curb speculative tensions in the sector. A more political than technical game to which Minister Pier Carlo Padoan is called.
DOWNWARD FORECASTS FOR COMMODITIES, CORPORATE BONDS GOOD
Meanwhile, more negative forecasts are raining down on the second half of 2016. Crédit Suisse has revised its 2016 targets downwards for the British Stock Exchange (-6,5%), the Eurozone (-14%) and the USA (-7,5% ). According to Morgan Stanley, the British Stock Exchange will lose 19%, European lists 14% with much higher peaks for financial stocks (but the health sector will be saved).
The prospects for commodities are very bad, starting with oil, already down on Friday (Brent -5% to 48,2 dollars a barrel). According to Jeff Kleintop, chief global investment strategist of Charles Schwab, the consequence will be a sharp rise in the dollar parallel to the decline in commodities. As a result, the yuan will devalue, which will also be affected by Europe's lower purchases of Chinese goods. In short, China too will contribute to making the picture worse.
Operators are betting on the rise of the yen, more than ever the safe haven par excellence, and on the fall of the euro against the dollar (1,05 at the end of the year according to Deutsche Bank). Crédit Suisse has no doubts: Japanese debt securities and German Bunds are destined to fall even further into negative territory "up to hitherto unexplored levels".
In this situation, according to a report by Morgan Stanley, corporate bonds must be considered with great attention: after an initial reduction, it is the thesis, the market will appreciate the shield guaranteed by the ECB.
PURCHASE OPPORTUNITIES: LUXURY SHINES FOR EXANE
But there is no shortage of optimists who invite you to evaluate the buying opportunities after the great decline, even in Piazza Affari. It is the opinion of Exane, for example. The French broker believes that panic selling should lead to a drop in European stock exchanges of around 15% judging by the precedents of the last ten years (crack of Lehman Brothers, the devaluation of the yuan and the first bailout of Greece). Much of the short-term correction, therefore, is already behind us: there will still be declines, but no disastrous falls. Ian Richards, the strategist who signed the report together with five other analysts, points out that we are not facing a systemic crisis of a financial nature, such as that of Lehman Brothers.
In addition, there are central banks, ready to do anything to avoid market collapses. With great caution, and perhaps after waiting a week, you can go back to investing in the stock market with one caveat: avoid banks altogether, starting with the Italian ones. Insurance companies and finance companies should also be avoided. Better to stay away from all companies related to the economic cycle, including those in the automotive sector. Green light instead for investment in regulated utilities, in luxury, in food companies and in those exposed to the United States.
Therefore Exane advises to take a leisurely look at Atlantia, Luxottica, Ferragamo, Tod's and Moncler. Italian luxury companies are helped by the weak euro. Special consideration also for Snam and Terna favored by the purchases of the ECB on the market of bonds issued by private companies.
STRESS TEST ON US BANKS. RCS, THE LAST WORD FOR CAIRO
In the face of the exceptional situation, some appointments, albeit relevant ones, lose weight. These include the forthcoming outcome of the Fed's stress tests on American banks and on the US branches of European banks. As for Piazza Affari, the tender for RCS continues (-2,9% on Friday, significantly better than the rest of the list). The consortium made up of Investindustrial of Andrea Bonomi, Diego Della Valle, Mediobanca, Pirelli and UnipolSai has raised the bar of the takeover bid from 0,70 euro per share to 0,80 euro. Now Cairo Communications will have until next Friday for a new relaunch.
