The storm is raging on world markets. Wall Street closed its worst session in seven years last night, but the surge in the Vix, the fear index (at its highest since 2015) and the trend of US futures this morning in Asia suggest that the situation is not yet under control. The effect of electronic trading contributed to making the day more dramatic: yesterday the Dow Jones fell back by more than 800 points, to the point of registering a negative peak of 1.600 points.
Volatility indicators, stable for years, have shot up all together, causing havoc among the funds that work, buying shares, or selling them, depending on the low or high volatility. UBS has calculated that in the world there are billions and billions of dollars invested in instruments based on this strategy. Tonight, Nomura announced the closure of one of these funds, after a loss of about 70% of its assets.
The question is whether we are facing a correction, albeit a deep one, or a trend reversal. The first is good, say the US commentators, also because this time the decline is, paradoxically, the effect not of a recession but of a positive situation, perhaps too much so, of the world economy. The recovery of employment and wages both in the USA (+2,9% wages in January) and in Europe (German mechanics are on strike to ask for more money and time cuts) combined with the rain of liquidity arriving for US corporations, with the US tax reform, it has created the conditions for the growth of inflation. Faced with the phenomenon, the Fed, it is the fear of the markets, could react by accelerating the trend towards rate increases.
The relay at the top of the American Central Bank did not help to reassure the atmosphere between Janet Yellen, who took her leave with a heavy fine against Wells Fargo, the bank that fixed the accounts (an excellent example for Italy), and Jerome Powell. Faced with such a violent reaction and the concerns of Donald Trump, who is so confident in the consensus of the Stock Exchange, the Fed is likely to proceed with a light hand.
RECORD VOLATILITY, THE BITCOIN SINKS
Thunder and lightning meanwhile cover the skies of the markets that promise bad weather also for the European opening. Wall Street's budget is heavy. The S&P 500 index closed down 4,15%, the sharpest drop since August 2011. The Dow Jones (-4,6%) left the ground 1.175 points at the close, the Nasdaq (-3,8 %) slipped below 7 points (6.967). The Vix, Wall Street's volatility indicator took off, closing at 37 points, a level not seen for over two years: +115%.
Asia's stock markets tumble, swept up in the same bearish wave that knocked Wall Street down. Hong Kong loses 5%. Taipei 5,5%. The CSI300 index of Shanghai and Shenzhen stocks is down 3%. Seoul -2,7%. Mumbai -3%. The Japan Stock Exchange is starting to close down by almost 5%, with volumes double the average of the last thirty days. The yen, rediscovered as a safe haven asset, appreciated against the dollar at 108,8.
The dollar recovers and is trading on the highs of the session: cross 1,241. Bitcoin did not take advantage of the descent. On the contrary: the cryptocurrency has fallen below 6.000 points, the sixth consecutive day of decline.
Within a few hours, bonds were back to being the safe haven asset, loved and appreciated, while last week they were considered frighteningly overvalued: the yield on the 2,67-year Treasury Bill collapsed to 2,86%, from XNUMX % of the day before.
Brent oil traded at USD66,8 a barrel this morning, down 1,2%.
EUROPE PREPARES FOR THE TSUNAMI. MILAN BELOW 23 THOUSAND POINTS
Start of the week in the red also for European lists, even if at rates with a much lower volatility than in the USA for now. But the markets are now preparing to face the tsunami of sales arriving from US markets. In Milan, the worst market, the index closed yesterday's session below 23.000 points at 22.821 points, with a drop of 1,64%. Heavy losses also in Paris (-1,48%) and London (-1,44%). Frankfurt limited the decline to 0,76%.
In the meantime, positive signals continue to arrive from the real economy, which were completely overlooked by operators yesterday: the PMI services index in January jumped to a record 57,7 points since July 2007). The composite PMI of the Eurozone in January had no better effect, reaching 58,8 points, above the 58,1 in December and better than the consensus set at 58,6.
DRAGHI WARNS ABOUT THE STRONG EURO
The message launched by Mario Draghi during the hearing in the European Parliament was also reassuring: the economy of the euro area, said the president of the ECB, is expanding steadily, with growth rates higher than expected, well above its potential. But Draghi did not fail to issue a warning to the US: "New headwinds - he said - have come from the recent volatility of the exchange rate, the implications of which on the outlook for price stability in the medium term require close monitoring".
ECB experts, in a chapter of the monthly bulletin, warned that the eurozone could be affected by the maxi-tax reform of about 1500 trillion dollars over 10 years introduced by the president, Donald Trump, in the USA and some European countries could see it eroded their tax base.
BTPs MORE SOLID THAN SHARES. SPREADS AT 130
Italian government bonds already recovered their initial losses in the morning, closing the session with little movement, better than banks and corporate bonds. The performance of short-term loans improved with a consequent steepening of the yield curve. The Btp/Bund spread held up well between 130 and 135 basis points. The yield on BTPs stood at 2,01% (-2 basis points). The ten-year Bund strengthens: the yield falls to 0,73%, from 0,76% at Friday's close.
The purchases of securities of the Italian public sector by the ECB and the Bank of Italy carried out in the context of the Qe amounted to 3,421 billion euros in January, a much lower figure than the 7,958 billion in December.
THE GIP FUND OFFERS 2,3 BILLION FOR ITALY
Borsa Italiana risks losing one of the most promising IPOs of 2018. The US fund Gip (Global Infrastructure Partners) with assets of 40 billion dollars has advanced an offer for Italo of 1,9 billion euros (plus 400 million in debt) for Italo, the railway transport company about to present the quotation application. This was announced by the controlling shareholder, Ntv, specifying that the offer expires at 17 pm on February 7 and that Italo has set a Board of Directors meeting for today at 15 pm to assess the status of the process aimed at listing on the Stock Exchange and carry out the checks within its jurisdiction regarding the offer.
The offer also envisages the option for current shareholders to reinvest up to a maximum of 25% of the proceeds deriving from the sale under the same conditions as any purchase by GIP. The Fund also hopes that the current president Luca Cordero di Montezemolo and the managing director Flavio Cattaneo maintain their respective roles in Italo.
LEONARDO'S LANDSLIDE CONTINUES
The declines affected all sectors of the Italian market to a certain extent: industrial, banking and TLC in the lead. Leonardo's new fall (-4,5%) stands out in particular in the basket of Italian blue chips. Barclays cuts the target price to 10 euros. At the start of the session, however, the stock had slipped to 8,95 euros, the lowest since July 2016.
FCA IN FALL EVEN THOUGH PROMOTED BY S&P
Fiat Chrysler closed sharply down at 18,13 euros, despite S&P upgrading its rating to BB+ from BB in the afternoon, with a positive outlook. The indiscretion according to which the US Department of Justice intends to impose heavy fines on the Italian-American car manufacturer linked to alleged violations of diesel emission regulations in the US weighed heavily.
Ferrari also weakened (-2,3% to 101,35 euros). Equita confirmed the Buy recommendation, however cutting the target price to 110 euros from 120 euros. Almost all brokers promoted the newly announced accounts by raising target or recommendation. The exception was SocGen, which reiterated the Sell judgment by setting a target price of 66 euros. The other stocks of the Agnelli group were in the red: Exor -3,28%, Cnh Industrial -3,61%.
Among industrialists, Pirelli also fell (-2,63%). On the positive side, Brembo stands out (+0,4%).
IN POSITIVE SOIL STM ONLY
Instead, Stm closed in positive territory (+0,70%). The Italian-French group recovered all of the heavy initial loss and closed at 18,62 euros. At the opening it had fallen below 18 euros. Making the turnaround possible was the echo of Broadcom's hostile bid increase on Qualcomm to $146 billion (including debt).
TODAY THE BIG DAY OF INTESA, CREVAL BOUNCES
As in the rest of Europe, banks and financial institutions are down. The worst stock in the sector was Banco Bpm (-3,56%). Spotlight on Intesa (-1,03%) in anticipation of the presentation of the industrial plan of today. Among the brokers, the most optimistic about the institute is Credit Suisse (outperform rating and target of 3,40 euros).
Down Unicredit (-2,11%) which will communicate the balance on Thursday. The consensus of analysts estimates a net profit of 5,2 billion euros, taking into account the capital gain linked to the sale of Pioneer equal to 2,1 billion.
Against the trend, Creval (+5,04%) which released results above expectations. In the fourth quarter alone, the bank achieved a net profit of 70,8 million "in line with the profitability recovery objectives underlying the business plan", reads a note. In the evening Hoskins Partners announced control of 5,06%.
Also in the light Bim (+6,25%) which denied the rumors about a possible earthquake in top management under the direction of the new shareholder Attestor.
Among the few increases UnipolSai (+0,49%) on which JP Morgan raised the target price to 2,3 from 2,27 euro.
WEAK MEDIASET. THE FOOTBALL LEAGUE CHOOSES MEDIAPRO
The entire media and telco sector was heavy, starting with Mediaset (-1,47%). Telecom also sold, down 2,4%. The news of the separation of Sky and the Biscione himself with the Lega Calcio, which accepted Mediapro's global offer for TV rights for 2018-21, is also heavy. The offer exceeds the minimum of 1.000 billion by 1,05 euros and will now be turned over to Agcom.
