Spanish and Italian Banks Take a Pummelling

It’s been another slow start to trading on Wednesday with the festive period well and truly upon us and any major data and news flow largely absent.

There has been some focus this morning on the Spanish and Italian banking sectors, both of which have experienced some very heavy selling early in the session. Struggling Italian banks have been offered a lifeline after the lower house of parliament approved a request that will enable the government to borrow up to €20 billion to aid the recapitalisation of banks as a last resort. Still, Monte dei Paschi is down heavily on the day after it confirmed that it has only four months of liquidity left, which is much less than previously thought. This latest revelation makes the need for a solution all the more urgent.

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Spanish banks on the other hand are suffering a ruling by the European Court of Justice that has forced some lenders to repay unfair mortgage interest charges levied on customers prior to the 2013 ruling by the Spanish High Court. At the same, the Spanish High Court decided that “floor clauses” which impose a limit on how low mortgage rates can fall in line with the benchmark rate, were illegal but that legacy profits for banks on such practices should not have to be repaid. With the ECJ finding otherwise on the latter half of the ruling, some Spanish banks will now be forced to repay billion to customers in another hammer blow to the sector.

Elsewhere, markets have been relatively quiet this morning with the yen once again paring its recent substantial declines. We saw some weakness in the currency on Tuesday on the back of the Bank of Japan’s insistence that current yield targets are appropriate, despite yields elsewhere having risen considerably sending the yen into a tailspin lower.

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We’re seeing some small gains in oil again on Wednesday, which could see WTI extend its winning streak to five straight sessions. Although, it should be said that in this time, the advance it’s made is only marginally larger than its decline the day before so we can’t get too carried away with the move. Gold is also creeping higher again today as it continues to benefit from some profit taking having suffered a pummelling at the hands of the recent Federal Reserve moves. We could see Gold retesting $1,150 again soon but it will take a significant move to break above here given the overall strength of the dollar and hawkishness of the Fed.

For a look at all of today’s economic events, check out our economic calendar.

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