Italian political crisis sees risk appetite wither in Europe

Politics dominated markets on Monday, with risk appetite withering in Europe as Italy lurched toward fresh elections. The region's shares and currency reversed early gains. Holidays in the US and UK also slowed trade.

DUBLIN

Traders complained that business in Dublin was “very, very quiet”, largely thanks to the closure of New York and London for bank holidays on Monday.

Landlord Irish Residential Properties Real Estate Investment Trust (Ires Reit) rose 1.46 per cent to €1.39 as the company geared up for its annual general meeting in Dublin on Tuesday.

Home lender Permanent TSB tumbled 7.29 per cent to €1.73 on very light trades. Dealers said the price reflected a lack of liquidity rather than any particular news.

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“It has been doing some decent business on the UK line recently, but whoever has been buying it was not around, so it came off on that lack of liquidity,” one trader explained.

Dealers offered a similar explanation for a fall in packaging group Smurfit Kappa, which shed 3.39 per cent to end the day at €36.64.

Other than Permanent TSB, Irish banks performed well despite weakness in the sector across Europe on the back of political volatility in Italy.

Bank of Ireland gained 1.01 per cent to €7.505. Its main rival AIB rose 1.22 per cent to close at €4.98.

Newspaper group Independent News & Media climbed 5 per cent to close at 10.5 cent. Dealers said a number of retail buyers showed interest in the stock on Monday.

Index heavyweight, international building materials group CRH, shed 1.54 per cent to close at €30.71 after about 700,000 of its shares changed hands in Dublin on Monday.

The stock actually climbed earlier in the day, reaching €31.39 at one point, but began sliding back in the afternoon. Traders attributed the fall to weakening sentiment towards the Irish group’s US peers. About half the group’s turnover comes from the US.

Airline Ryanair had a largely quiet day despite news that cabin crew unions have issued the Irish carrier with an ultimatum that could result in industrial action next month. The stock was unchanged at €16.72.

Tullow Oil was 4.06 per cent off at €2.60 as Russia and Saudi Arabia indicated that they might revive production, sending crude prices falling.

EUROPE

Italian banks led European financial stocks lower on growing concerns that fresh elections could strengthen the hand of populist parties to challenge European economic orthodoxy.

Banca Monte dei Paschi di Siena SpA, the habitually-volatile state-rescued bank, led declines with a drop of as much as 7.8 per cent. The lender's shares closed 7.05 per cent down at €2.44 on Monday.

Seven of the eight worst performers on the Bloomberg Europe Banks Index were Italian lenders, as of 4pm on Monday, with UniCredit SpA and Intesa Sanpaolo SpA losing almost 5 per cent. The FTSE MIB Italian stock benchmark erased 2018 gains.

"New political elections amid increasing consensus for populist parties is scaring investors," said Gabriele Pinosa, head of Go-spa Consulting, a Milan-based advisory firm.

“A stronger victory of frustrated Eurosceptic parties may lead them to take stronger actions against European rules and euro. This is particularly negative for Italian banks, due to their exposure to the country’s sovereign debt.”

The political situation is "clearly unfavourable" to the rebound of Italian lenders as well as to banks exposed to Italy, such as France's BNP Paribas SA and Credit Agricole, Natixis said in a note on Monday.

Despite “solid fundamentals” BNP, Agricole, UniCredit and Intesa will all see continued pressure, the brokerage said. The European financials index was down 1.3 per cent, taking the decline for this year to 8 per cent. FinecoBank SpA and Banco BPM SpA joined Monte Paschi as the bottom three stocks on the index.

Italy’s 10-year yield gained 17 basis points to 2.63 per cent, the highest in almost four years on the largest rise in 14 months. – Additional reporting: Bloomberg