The market sentiment is mixed, but there are still interesting movements on the market.
EU watchdogs: there’s no need to worry about Italian banks
European banking watchdogs have ramped up their monitoring of liquidity of Italy’s financial institutions after an abrupt surge in Italy’s government bond gains. However, there’s no cause for worry, as a senior EU source disclosed on Tuesday.
According to the source, the monitoring was conducted more intensely than before because of recent market turmoil.
Eventually the checks covered customer deposits as well as the interbank market, which Italy’s financial institutions utilize to lend to each other without requesting collateral. As a result, the watchdogs didn’t find any sings of alarm.
Both the European Bank and the Bank of Italy refused to comment.
The ECB, in tandem with national watchdogs regularly closely watches lenders' liquidity conditions and also adjusts its monitoring, in particular its depth and frequency, during the periods of stress or big fluctuations.
Evidently, a budget standoff between Italy’s anti-establishment government and EU authorities on Tuesday backed Italy's benchmark 10-year debt costs, pushing it to 3.72%, which is the highest outcome since February 2014.
The previous month the ruling coalition set a deficit objective of about 2.4% of economic output for next year, thus tripling the previous cabinet’s objective for the heavily indebted country, unnerving traders and also provoking sharp criticism from the European Commission.
Italian financial institutions are quite vulnerable to sovereign debt issues due to the fact they hold approximately 375 billion euros of domestic bonds, which accounts for 10% of their assets.
The equities in the country's lenders have headed south abruptly for the last time and the cost of insuring key financial institutions’ debt against a potential default has tacked on.
However, the sufficient liquidity provided by the European Central Bank for the period of ultra-expansionary monetary policy is protecting the interbank market from any tensions, as some financial analysts pointed out.
The market sentiment has switched to risk-on, driving upwards stocks and riskier currencies and weighing on the US dollar.
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