FTSE stalls following surprise surge

Mixed fortunes in Europe follow yesterday’s surprise rally. Meanwhile, the likely government bailout of Monte dei Paschi is a boost to financial firms globally.

• FTSE eases after strong bounce yesterday

• Monte dei Paschi bailout will mitigate contagion risk

• Saudis raise crude prices after production masterstroke

The FTSE has moved to counteract some of yesterday’s gains, with the index marginally in the red. The Italian referendum result came as no surprise, but it is the market reaction which has caught many off guard with the euro surging to a three-week high against the dollar. Today sees precious few big events to spark substantial volatility, yet given the backdrop of Italian elections, there are likely to still be residual effects from Sundays vote.

One of the biggest worries surrounding the referendum was the impact it could have upon the nation’s banking system, with the likes of Unicredit and Monte dei Paschi in the midst of a recapitalisation and bank rescue plan. Plans to raise substantial funds at Monte dei Paschi have hit the buffers after the ‘No’ vote and while a likely government bailout may not be the ideal otucome for the bank, it will mitigate the risk of a collapse and contagion in the region, hence the widespread gains across the financial sector today.

Yesterday’s 16-month high for Brent crude went some way to proving that markets do believe in the importance of last week’s OPEC deal, which could see as much as two-million barrels of crude per day cut from OPEC and non-OPEC quotas. The cynics amongst us will note that we are simply taking output back to April levels, when Brent was priced at $45, yet with the current price some $10 higher, perhaps this has been a masterstroke of market manipulation from the Saudis.

Ahead of the open we expect the Dow Jones to open 8 points higher, at 19,224.