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Veneto, one bank bailout is never enough

Stock price ticker boards were filled with green on Monday. Bank stocks led the gains after the state rescue of two lenders in Italy. The highest reading on record for the IFO survey, a German business-sentiment index added to investor confidence. Germany's DAX stock index jumped to a record high after the positive data surprise. Confidence this high in the last week of the second quarter is a good indication economic growth in Europe could accelerate further in the third.


Senior bonds in the banks leaped after the rescue deal. For some unimaginable reason, bondholders seem to prefer taxpayers funding the purchase of bad loans over losing their investments. Although two small regional banks basically just went belly up and shareholders were wiped out, it was the shares of similarly-sized banks that outperformed. The logic is quite sound. Italy has just shown the age of bailouts is not over. That significantly reduces the risk of an investment in a bank going sour.


Italy’s FTSE MIB was the best-performing equity index in Europe following the bank bailouts. The high concentration of banks in the FTSE 100 allowed a rise in Britain’s benchmark despite some modest strength in the pound. The muted reaction in retail shares to the purchase of health store chain Holland & Barret is perhaps owed to concern at competition from Amazon across the sector. Shares of both Rio Tinto and Glencore rose after Rio announced it prefers Yancoal's further improved offer of $2.69B for its thermal coal assets. Consumer goods shares including Unilever were in demand after activist investor Daniel Loeb's Third Point hedge fund took a $3.5B stake in Nestlé SA.


Stocks in the US rose to near record levels in early trading buoyed by the ongoing recovery in tech stocks. Reportedly Facebook is talking to Hollywood studios about producing original TV programming by late summer. At the same time US durable goods orders fell 1.1% in May. The transfer of power from old industry to new technology is powering the rise in tech stocks.


The British pound rose as Theresa May scraped together a coalition deal-of-sorts with Ireland’s DUP. Brexit talks focused on the rights of UK and European citizens abroad, a concern for many businesses, left currency traders disinterested.


Gold prices slumped heavily in early European trading, with a large number of contracts dumped onto the market shortly after the German IFO data. Gold has been steadily losing its appeal as Europe and the US emerge unscathed from political upset.

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