Italian government approves decree to save fragile banks
On Thursday night the Italian Cabinet approved the decree protecting fragile Italian banks and securing €20billion of finance support. But will this be the end of the problem…speculation is that probably it won’t be.
Italian banks have been thrown a lifeline and with that a degree of local systemic risk has been postponed. But the balance sheets of many Italian and, for that matter European banks, are still full of debt that trades under water and will struggle to break the surface without a reasonably quick turnaround in the global and eurozone economy. This is another case that could continue to see the euro as highly linked to local growth data.
Deutsche Bank settles at $7.2billion, half of initial amount suggested for the fine.
The German bank has reached an agreement, in principle, to pay a $3.1 billion fine and make another $4.1 billion available for “consumer relief”. An eye-watering amount but still far less than the $14 billion the US Justice Department had originally suggested.
Ironically, this is almost being taken as good news for Deutsche Bank. They will take a pre-tax charge of around £1.15 billion this quarter and the relief to customers will likely be paid over a four- or five- year period, softening the impact. Credit Suisse have also agreed a settlement and relief package of around $5 billion for the same mortgage mis-selling activities. Euro is holding up very well all things considered.
USD
Despite the banking situation in Europe, budget price action remains stubbornly counter intuitive. USD long positions are almost the largest on record. With the USD selling into the year end as people square some of that position off. It might be some time until the big drop that is expected in EURUSD once it had broken 1.0450, surprising given how gloomy things look on the continent. Price action is subdued but also suggestive of a latent interest to keep selling USD on rallies, again surprising given the Fed last week and US data recently. Our explanation is year-end closing of at least a part of a very big long USD position. Once 2017 gets under way we expect to see the USD rally continue.
GBP
Pressure remains on GBP as year-end approaches. GBP selling becomes the end-of-year theme as positions get squared in thin liquidity. Not much movement in EURUSD, or even USDJPY, but GBP continues to trade lower and lower as it gives back more and more of the post Tump rally. Levels in GBPUSD are now down at 1.2200 and more dangerously 1.2130, and GBPEUR at 1.1640.