DE30: Italian shares lead the gains after economy minister remarks

Summary:

• European stock markets begin the week in upbeat moods, Italian stocks rally following pro-European comments from economy minister
• Italian bonds gain reflecting a lowered risk premium helping the euro alike
• German DAX (DE30) keeps moving north, a major hurdle still ahead

Italian shares are surging while bond yields collapsing following a stream of pro-European remarks voiced by Italy’s economy minister over the weekend. The opening of the Italy’s stock market suits upbeat moods across the old continent even as the G7 summit ended with no consensus. Equity investors seem to also downplay a Trump-Un meeting scheduled for tomorrow as expectations related to any imminent breakthrough have been trimmed of late. Notice that yet several weeks ago markets had expected that a denuclarization deal could be made during the June’s meeting nevertheless since then Trump toned down his positive view suggesting that North Korean denuclearization may take time, and this week’s meeting may be one of many needed to do so. Therefore, a day before the meeting a majority of market observers seem to agree that it cannot be a one and done event.

Italian shares rally in the morning bouncing off its pivotal technical level opening the way for more gains this week. Technically speaking we have a brush with a promising risk/reward ratio as any falls should be contained to 21300 points unless the trend turns into bearish one. Source: xStation5

Looking back to the weekend it’s worth mentioning some remarks made during the G7 summit from German Chancellor Angela Merkel. She ensured that the G7 summit does not mean an end of transatlantic partnership, but at the same time she said that "we won’t let us being ripped off over and over again, we will also act then". Notice that similar comments came from the US administration suggesting that trade frictions between the EU and the US are not going to subside any time soon. When it comes to remarks from Italian economy minister we got further commitments that the new government will not purse an exit of the euro. Giovanni Tria said that the government is determined to prevent in any way the market conditions that would lead to an exit materializing. These comments found their reflection in the country’s bond market as yields tumbled across the board.

The DE30 keeps trading within a broader range, and now buyers are eyeing again 12900 points as their closest aim. Notice that before the ongoing impressive bullish waive occurred sellers were sufficiently determined to push the price lower to test a 12735 points area, then the price shot up. Source: xStation5

German lenders lead the gains again on rising rates in anticipation of a hawkish stance of the ECB. Source: Bloomberg

For euro investors the ECB meeting seems to be the only game in town this week given that the Fed gathering should be a done deal (a hike is almost fully priced in, and therefore we perceive risks as being tilted to the downside for the greenback). In terms of ECB expectations were quite low yet three or so weeks ago, but they have ratcheted up lately on the back of a serious of hawkish remarks from prominent ECB officials including chief economist Peter Praet. At the same time, the G7 summit turned out to be a non-event bringing just short-lived moves across some assets. On that account we reckon that G7-related reverberations may be quickly dwarfed by the upcoming Fed and ECB meeting (BoJ meets on Friday as well, but let’s be frank no one expects any changes).

After an hours of trading the Italian FTSE MIB (ITA40) is rallying 2.35% leaving its major European counterparts well behind itself. The Spanish IBEX (SPA35) is going up 1%, the EuroStoxx (EU50) along with the DE30 are gaining 0.6% each while the FTSE100 (UK100) is adding 0.5%. Such splendid spirits were not shared among Asian investors as the session was quite equivocal. The NIKKEI (JAP225) was the best one picking up almost 0.5%, but it was fully driven by JPY weakness. Elsewhere, the Chinese Shanghai Composite lost 0.5% while the Hang Seng (CHNComp) added a modest 0.1%.

Company news

Commerzbank (CBK.DE), which is leading the gains in the morning, has been upgraded by HSBC to buy from hold with the price target lifted to 13 EUR from 11 EUR implying an almost 40% gain. The same company has downgraded Deutsche Post (DPW.DE) to hold from buy with the updated price target at 30.5 EUR, down from 40.5 EUR. The stocks is falling over 2% at the time of preparing of this analysis.