Euro, Italian shares up on Monte Paschi rescue hopes

London — European markets were poised for one last burst of action before the end of the year on Thursday, with Italy expected to outline plans to rescue the world’s oldest and now its most troubled bank, Monte dei Paschi di Siena.

With investors in most major markets already in holiday mode, stocks and metals drifted lower in thin trading, oil was steady and even the dollar eased off this week’s 14-year high.

Shares in Milan climbed 0.3%, flanked by the euro on hopes for government bailout for Monte dei Paschi, while European shares followed Asian markets down.

Sources told Reuters the bank failed to pull off a last-ditch private rescue plan on Wednesday meaning a state rescue looked inevitable with reports in Italy on Thursday saying that could be completed in between two and three months.

"This situation has dragged on for years without a clear solution. Now a solution is in sight," LC Macro Advisors head, Lorenzo Codogno, said.

"My perception is that the government backstop will be welcomed by financial markets and it will be a plus for the [Italian] economy as well."

The Monte dei Paschi saga is one of the reasons why Rome’s government bonds have been the worst performing in the eurozone this year, losing roughly 4%. 

Benchmark 10-year Italian and Spanish yields rose one to two basis points to 1.84% and 1.34% respectively and broadly in line with the wider bond market.

Greek two-year yields saw the biggest jump meanwhile with familiar concerns about its debts now returning.

Despite Italy’s climb, the pan-European STOXX 600 was down 0.2%, falling for a second straight session after hitting its highest level since January 4 on Tuesday.

Miners were the biggest sectoral fallers, down 0.9% as copper hit a one-month low but that comes after a near 60% surge for the stocks in 2016.

The dollar, which has been on a tear since Donald Trump’s election win, stoking hopes of a fiscal boost for the US economy, also dipped for a second day as traders booked profits before a batch of US data including revised GDP figures.

"You could see the dollar continue higher next year, maybe mid-single digit for the DXY index, but we would be surprised if it was another 10%," JP Morgan Asset Management global market strategist Mike Bell said.

Book closing

Overnight, MSCI’s broadest index of Asia-Pacific shares outside Japan slipped 0.5% with the Nikkei finishing 0.1% lower having hit one-year highs this week.

Japan’s cabinet approved a record $830bn spending budget for fiscal 2017 that counts on low interest rates and a weak yen to limit borrowing, underscoring the challenge Tokyo faces in curbing the industrial world’s heaviest debt burden.

Hong Kong’s Hang Seng index was down 0.7% after touching its lowest levels since July, though Australian shares finished up 0.5%, extending their gains into a fourth straight session.

Back in Europe, the euro was last up 0.2% at $1.0445 having pushed away from Tuesday’s near 14-year low of $1.0352 after attacks in Germany and Turkey.

Crude oil prices made modest gains, recovering from pressure from a report showing a surprise build in US crude inventories last week, as well as news that Libya expects to boost production over the next few months.

US crude was steady at $52.44 per barrel, Brent crude ticked up to $54.49, spot gold edged down to $1,130.44/ounce while industrial metals copper, zinc and tin continued their recent decline.

Major moves were thin and far between though with many investors already departing ahead of this weekend’s Christmas and New Year holiday. Markets in Tokyo will be closed on Friday for the Japanese Emperor’s birthday.

The dollar edged up 0.1% against its Japanese counterpart to ¥117,60, but remained shy of its 10-and-a-half month high of 118.66 touched on December 15.

Later on Thursday, the US will release a third revision of US third quarter gross domestic product. Durable goods orders for November and weekly initial jobless claims were also scheduled to be released.

"There’s a lot of year-end book closing and position squaring, and less in terms of data and events to go on," Barclays Singapore’s head of FX strategy Mitul Kotecha said.

Reuters/BDlive