Financial market research and analysis

Italian government committed to rescue Banca Popolare di Vicenza and Veneto Banca for 17 billion euros, the biggest rescue of its history. News revived concerns regarding the health of the Italian banks and an eventual impact on the Eurozone’s banking sector, yet the European banks opened in the positive territory.

The EURUSD trades in a tight range near the 1.12 mark.

The pound has been the biggest G10 gainer against the US dollar in Asia. The GBP-traders’ focus is on the Bank of England (BoE) Financial Stability Report and Governor Mark Carney’s speech due on Tuesday. Mark Carney has a clear dovish view regarding the BoE’s monetary policy outlook and his speech will likely keep the GBP-bulls back from taking the reins of the market. The short-term resistance is eyed at 1.2824 (minor 23.6% retrace on March – June rise & June triple top).

In the medium-term, investors should keep in mind that three MPC members (versus five) voted to raise the BoE’s interest rates in the June policy meeting and the BoE-hawks are gaining more voice due to the UK's rising inflationary pressures. This situation, combined to a widely softer US dollar continue pointing to a further advance toward the 1.30 level against the US dollar.

The FTSE made a firm start in London. Energy stocks gained 0.68% as the WTI crude recovered 1.35%.

However, gains in energy sector remain fragile as oil prices remain relatively soft compared to last month’s levels. The WTI erased $10 from May 24th to June 20th on the back of rising concerns about the global supply glut. Trend and momentum indicators remain comfortably negative. Resistance to the one-month negative trend stands at $44.42 (minor 23.6% retracement on May – June decline) and $45.88 (major 38.2% retrace).


Nestlé shares rise as Third Point steps in with 40 million shares

Third point, the activist Dan Loeb’s hedge fund, collected 3.5 billion dollar worth Nestlé shares (+4.7%).

Third Point suggested a number of measures to boost the performance of Nestlé, whose ‘quality business' has 'so many avenues for improvement’. These measures included selling its 23.2% stake in L’Oreal SA, increasing leverage in share buybacks and adopting a formal profitability target.

News were cheerfully welcomed by shareholders as the group’s new CEO Mark Schneider is seen as an interesting ally, who is known to be in favour of investor-friendly, rapid and efficient changes to explore and increase the company’s potential.

Nestlé opened 3.50 francs higher in Zurich. L’Oreal gained €5.95.


US dollar is under pressure

The US dollar kicked off the week with a tiny appetite after the June preliminary PMI figures disappointed on Friday. The US manufacturing PMI unexpectedly eased to 52.1 from 52.7, versus 53 expected. The flash services PMI softened to 53.0 from 53.6, versus 53.7 a month earlier.

The US has a busy economic calendar this week. The preliminary data for the US May durable orders is due today. Analysts' forecasts suggest that the US durable goods orders may have contracted for the second consecutive month, by 0.6% versus -0.8% a month earlier. As such, the soft data could further weigh on the US dollar. On the other hand, even a positive surprise could have a limited positive impact before Janet Yellen’s speech (Tue), the US 1Q final GDP data (Thu) and May income and spending figures (Fri).

FOMC Chair Janet Yellen is due to speak on Tuesday. The Federal Reserve (Fed) hawks retreated significantly after the Fed’s June rate hike, although the Fed preserved the possibility of another rate hike before the end of the year and hinted at an imminent balance sheet normalisation. We do not expect Janet Yellen to reveal a further insight regarding the Fed’s policy outlook. Soft US data could however reinforce the idea that the Fed is no longer in a rush to normalize the US monetary conditions. The reflation scenario loses its popularity.

The US 10-year yield remains heavy below the 2.20%.

Gold is bid above $1’254 (minor 23.6% retrace on June decline). Soft US yields are supportive of a further rise to $1’262 (major 38.2% retrace), which will distinguish between the June negative trend and a short-term bullish reversal. More support is eyed at $1'248 (200-day moving average).