Europe close: Investors brush off Italian referendum result
Italian stocks ended slightly lower after seesawing between gains and losses throughout most of the day after Italian PM Matteo Renzi's resignation following the defeat of his attempt at constitutional reform at the weekend, while the euro jumped back sharply and shares in the rest of Europe advanced.
By the closing bell, Italy’s FTSE MIB was down by just 0.21% after having briefly turned higher earlier, as some analysts suggested the outcome of the weekend vote in Italy was largely priced in, although others were a bit more skeptical.
"In the end, most Italians were unconvinced that Mr. Renzi’s proposed constitutional reforms and his agenda provided a real chance to change the fate and fundamentals of the country, ultimately preferring the continuation of the current state of affairs. Let us hope that this turns out to be the best for their future! Certainly, stopping such an important reform and the consequent formation of a new government is likely to make the road to structural reform bumpier for Italy, at least in the near future. This is something that investors and Europe usually do not like," strategists at UniCredit Research said.
Banks finished lower but well off their lows of the day, even as investors worried that political instability would make the task of sorting out non-performing loan issues even more difficult. The FTSE Italia All-Share Bank index was down by just 0.13% by the end of trading, while the pan-European Stoxx 600 gauge for lenders' shares ended the session with gains of 0.89% to 159.32.
Monte dei Paschi di Siena was 4.21% weaker amid concerns about risks to the troubled lender’s €4bn cash call, which was due to start this week.
Stock in UniCredit, which was reported to have started exclusive talks with France’s Amundi to sell its asset management arm Pioneer Investments, slipped 3.36%. Amundi gained 3.33% on the news.
At the same time, the yield on Italy’s 10-year government bond rose by eight basis points to 1.98%. Yields move inversely to prices.
In the rest of Europe, the benchmark Stoxx Europe 600 was 0.56% higher with France’s CAC 40 1.0% ahead and Germany’s DAX up by a hefty 1.63%.
Meanwhile, oil prices were up, with Brent crude oil futures 0.87% higher at $54.94.
On the data front, Markit’s final Eurozone composite output index came in at 53.9 for November, down from the 'flash' estimate of 54.1 but up from October’s 53.3.
This marked the best reading since December 2015, with the strongest rates of increases registered by Ireland and Spain.
Chris Williamson, chief business economist at IHS Markit, said: “The Eurozone PMI indicated faster economic growth in November. The improvement is enough to signal an acceleration of GDP growth to 0.4% in the fourth quarter.”
Meanwhile, retail sales in the 19 countries that share the euro rose 1.1% month-on-month in October, beating expectations of a 0.9% increase according to the latest figures from Eurostat. On the year, sales were up 2.4%, compared to a 1% jump in September.
Pantheon Macroeconomics said: “Across sectors, a 2.3% month-to-month jump in non-food sales was the main driver of the October rise, offsetting a decline in spending on petrol. Food sales also rose modestly. It is too early to say anything convincing about Q4 as a whole, but our base case is that retail sales will increase 0.4% quarter-on-quarter, marginally higher than the 0.3% increase in Q3.”
In currency markets, the euro had gained back some ground after falling to a 20-month low in Asian trade, trading up 0.34% against the dollar at 1.0698.
In corporate news, Royal Bank of Scotland rose as it reached a settlement with three of the five shareholder groups who said they were misled over the bank’s £12bn fundraising in 2008.
Hungarian low cost airline Wizz Air gained as it reported 19% in growth in passenger numbers for November, as the load factor ticked higher.