Europe: Stocks catch Italian cold

[LONDON] Italian banks shares slumped Monday as risks linked to a crucial weekend referendum cast a shadow over markets across Europe, while oil prices fluctuated along with the chances for an Opec deal.

Shares in Italy's leading lender Unicredit tumbled 5.7 per cent, while those in the second-largest bank Intesa Sanpalo fell 4.2 per cent.

The poor sentiment spilled to the rest of Europe, with shares in Royal Bank of Scotland falling 3 per cent, Deutsche Bank 2.4 per cent and Societe Generale 2.1per cent.

Tensions between Italian Prime Minister Matteo Renzi and the EU have reached a boiling point ahead of Sunday's referendum on constitutional reform.

"It's a key moment for Italy's banks," noted Neil Wilson, senior market analyst at ETX Capital.

"Sunday's referendum on constitutional reform is Italy's Brexit moment and a No vote would send tremendous shockwaves through the markets and the banking system."

"It could also heap pressure on the euro. Already crushed post-Trump, the euro could hit parity with the US dollar if Mr Renzi loses as Italy's place in the eurozone could be doubt," Mr Wilson predicted.

Italy did not bail out its banks during the eurozone crisis, but has sought to recapitalise them via the markets. Two of its top three markets need to raise capital in the coming months.

The Financial Times reported Monday that up to eight Italian banks could fail if market turmoil following a rejection of the referendum frustrates efforts to raise capital.

Focus was also on the oil market ahead of a key Opec output meeting Wednesday.

"Equities have started the week on the back foot, with investors concerned about Wednesday's Opec meeting being a waste of time and next Sunday's Italian referendum having potential to send shivers through Europe's banking sector," said Mike van Dulken, head of research at Accendo Markets.

After both main contracts slumped around four per cent on Friday on disagreements over plans to cut output, they rebounded on Monday after Iraq's oil minister expressed optimism about a deal.

Over the weekend, Saudi Arabia had added to pessimism over the chances of a deal by suggesting that recovering demand would help stabilise prices next year, even without Opec intervention.

"Given this uncertainty oil traders - buyers and sellers - are taking no chances as they use every opportunity to take quick profits," said market analyst Fawad Razaqzada at Forex.com.

"Expect to see further choppiness until at least Wednesday, unless Opec's next move becomes clear one way or another before the actual meeting," he added.

US stocks moved lower Monday following a four-session winning streak as investors looked ahead to a week rich in economic data, with the Dow slipping 0.3 per cent in late morning trading.

US stock indices have smashed records, rallying since Donald Trump's Nov 8 upset victory over Hillary Clinton in the presidential elections, with investors cheered by hopes Mr Trump will boost infrastructure spending, cut taxes and ease regulations.

Elsewhere Monday, Hong Kong led gains in most Asian stock markets after officials announced the start of a long-awaited link-up with Shenzhen, but the US dollar retreated against most peers after its recent surge.

The city's Hang Seng Index finished up 0.5 per cent, though Shenzhen slipped 0.1 per cent by the close. Shanghai ended up 0.5 per cent.

Most other regional stock markets were up, extending last week's gains on bets that Donald Trump's spending plans would boost US economic growth.

AFP