Tensions on the markets are rekindled and Italy is once again under special surveillance. Piazza Affari collapses by almost 3,40, the worst stock exchange in Europe, (Dax -1,75%, Ftse 100 -1,43%, Cac -2%) which accelerated further downwards after the release of lower US macro data to expectations. For traders there is no specific technical reason for weakness. Italy pays more than the other problems that are on everyone's table. Mario Spreafico, investment director of Schroders Italia says: “Italy is not the problem, it is hit because it is the most liquid market, the index is full of very liquid banks, it is easy to trade. In fact we are facing another speculative attack”. In short, we are at the starting point, almost as if Europe had not launched the aid package for Greece last Thursday.
“The problem – continues Sprafico – is that time is needed to see the state-saving fund operational, let's not forget that the EFSF is a legal entity this takes time to activate the changes. In this interregnum we are faced with unjustified raids on the markets that divert attention from what is happening in the USA, a much bigger problem”. Of course, over time the situation should slowly improve but in the meantime the price list continues to suffer. According to Spreafico, there are three rules that should be put in place to avoid this type of dynamic: “First of all, in this context it is good to block short selling throughout Europe, what has been done is not enough; then clear signals must be given on the times and ways in which the EFSF operates and finally it is necessary to move forward on the regulation of CDS”.
A market, that of credit default swaps (it indicates how much insurance costs on the risk of default of a country or a company and is therefore a measure of risk), which is not very transparent (over the counter) and on which the spotlights have been turned on by the associations European banking and the EU in the direction of a new regulation that could take shape as early as next autumn, if the Commission, the Council and the EU Parliament can agree.
On the other hand, some conflicting signals on the lists tell us that the problem is not strictly Italy: while the banks are falling, stocks such as Impregilo and Pirelli rise by 2-3 percentage points.
Yes, the story is known: our index collapses because dragged by the banks, the stocks that are most affected by the increase in the risk premium. And that closely follow the new widening of the Btp-bund spread above 310 basis points. Another market, that of Italian government bonds, is highly liquid and allows large speculative movements. Confirms Stefano Fabiani, manager of Zenit Sgr: “Today there is no specific reason for Italy, except that we are faced with the problem of the composition of our list in which the banks have a strong weight. It is clear that with Unicredit and Intesa falling by 4% and Ubi by 5, the Ftse Mib loses more than a Dax where consumer good stocks also weigh more. The banking sector today is also penalized by the downgrade of Goldman Sachs and by the ugly results of Santander”.
The business house cut its rating on the banks to neutral from overweight: after an initial optimism, in the face of some elements included in Greece's second bailout plan which were above market expectations, doubts about the possibility of financing new initiatives, in particular the strengthening of the EFS. Not only that, for Goldman Sachs worries about capital increases in banks should remain high for some time despite the good results in the stress tests. All European banks were affected, even if Italian banks generally did worse.
“We are in a phase of exaggeration - says Guido Crivellaro, Italy equity manager of Symphonia Sgr - when you are in such a volatile situation, with Unicredit which between Thursday and Friday had an intraday movement of 15%, you have to move with caution. Equity prices reflect this situation of excess but it will be necessary to understand when signals for recovery will come. The market is demonstrating that it has not been completely convinced by the plan on Greece. I am convinced the crisis has a good component of human errors”. In a nutshell: the crisis exists but those who have to act have not acted well. “Starting with the ECB: to get out of these situations we need to monetize the debt – continues Crivellaro – as Japan and the Fed did. Governments must then give a stronger signal on Greece, how long have we been talking about default?”. Is Italy acquitted? “We have undoubted strengths: a good primary surplus and a healthy banking sector, but if Italy had given a strong signal we wouldn't be at this point”.
