By Sara Sjolin and Carla Mozee, MarketWatch
But Stoxx Europe 600 rises as investors shake off the news
Italian stocks retreated Monday after Prime Minister Matteo
Renzi's resignation announcement following defeat of a
constitutional referendum, but questions remain about political
uncertainty and the possibility of another eurozone crisis.
Italy's FTSE MIB was down 0.2% at 17,050.33, but it had fallen
as much as 2.1%, FactSet data showed.
Bank shares bore the brunt of the selloff in Milan as the
industry has been trying to unload more than EUR200 billion in bad
debt off its books. The FTSE Italia All-Share Banks Sector Index
fell 2%, although that's an improvement from an intraday decline of
4.6%.
Read:The other loser in Italy's vote -- its big banks
(http://www.marketwatch.com/story/the-other-loser-in-italys-vote-its-big-banks-2016-12-05)
Although the referendum officially was on Renzi's plan for a
legislative overhaul, the vote was widely seen as a vote of
confidence in the prime minister and his government. There's
concern now the result sets the stage for a political shake-up that
ultimately could lead Italy out of the eurozone.
"Exactly what this means for markets still needs to be
determined, but the uncertainty this brings certainly won't be
welcomed," said Tony Cross, market analyst at TopTradr, in a
note.
"However, this should make the recapitalization of Italy's
struggling banks that bit harder, and Mario Draghi had pledged that
any volatility stemming from this could be met with further
extensions to ECB bond buying," he said.
The vote took place before the ECB's policy meeting on Thursday,
at which it will discuss its bond-buying program.
Supporting Italy would come from "first and foremost the
continued and current pace of the QE program at 80 billion euros a
month. The expectations that are being floated around a bit that
that could be cut to EUR60 billion a month -- that wouldn't be
helpful to Italy in the short-term," said Jim Smigiel, portfolio
manager of the Dynamic Asset Allocation Fund , in a telephone
interview.
Investors sold Italian debt
(http://www.marketwatch.com/story/italian-bond-prices-drop-yields-surge-after-referendum-defeat-2016-12-05),
a move that pushed the yield on Italy's 10-year bond above 2%.
Other European stock markets also opened lower, but during
morning trade, "equity markets were hit by a massive short squeeze.
European indices and U.S. futures aggressively reversed losses,"
said Ipek Ozkardeskaya, senior market analyst at London Capital
Group, in a note. The pan-European Stoxx Europe 600 index moved up
0.6% to 342.49.
Euro short: Among Italy bank shares, Banca Popolare di Milano
Scarl (PMI.MI) dropped 6.6%, and Intesa Sanpaolo SpA (ISP.MI) fell
1.5%. Shares in troubled Banca Monte dei Paschi di Siena SpA
(BMPS.MI) lost 3.1%. See: Monte dei Paschi advisers scramble for
rescue plan
(http://www.marketwatch.com/story/monte-dei-paschi-advisers-scramble-for-rescue-plan-2016-12-05)
UniCredit SpA (UCG.MI) fell 2.8%, with Italy's largest lender in
talks to sell its Pioneer Investments unit
(http://www.marketwatch.com/story/unicredit-in-talks-with-amundi-for-pioneer-sale-2016-12-05)
to Amundi SA (AMUN.FR).
Smigiel of the Dynamic Asset Allocation Fund said the fund
within its $2.2 billion in annual assets under management has
exposure to Italian equities "This is one area where we would
certainly recommend active management. We would be somewhat
hesitant to just take a broad index-like passive exposure to
Italy."
After the referendum, the euro fell to a 21-month low
(http://www.marketwatch.com/story/euro-tumbles-to-21-month-low-against-dollar-after-italys-no-vote-2016-12-05)
against the dollar to $1.0505 before recovering to $1.0701.
"From a shorter-term, tactical perspective, we have been short
the euro since prior to Brexit," said Smigiel. "We don't expect the
[bond-buying] tapering to be coming and we're looking out on the
horizon and there's just one political risk after another in 2017,"
he said. He expects the euro to hit parity with the U.S. dollar in
2017.
Read:What to know now that Italy has voted 'no,' with Renzi set
to quit
(http://www.marketwatch.com/story/what-to-know-now-that-italy-has-voted-no-with-renzi-set-to-step-down-2016-12-04)
And see:How Italy's referendum could spark a 'systemic crisis'
in the eurozone
(http://www.marketwatch.com/story/how-italys-referendum-could-spark-a-systemic-crisis-in-the-eurozone-2016-11-29)
Other indexes: In Frankfurt, the DAX 30 index climbed 1.6% to
10,678.55, with Commerzbank AG (CBK.XE) among just a few
decliners.
France's CAC 40 index perked up 0.9% at 4,571.47, and the U.K.'s
FTSE 100 index
(http://www.marketwatch.com/story/ftse-100-rises-as-bank-shares-recover-from-downbeat-start-2016-12-05)
traded 0.2% higher at 6,744.24.
Economic news: The final November reading for the eurozone
services purchasing managers index came in at 53.8, slightly lower
than the flash reading of 54.1. That figure still marked an
11-month high.
Activity in the U.K. services sector hit a 10-month high in
November
(http://www.marketwatch.com/story/uk-services-pmi-rises-to-552-in-november-2016-12-05-104853749).
The services PMI from IHS Markit/CIPS was 55.2, compared with a
54.0 FactSet estimate.
(END) Dow Jones Newswires
December 05, 2016 10:40 ET (15:40 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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