There has been a decidedly bearish turn to risk sentiment in Europe, where the EURUSD briefly touched over 1.43 just under two hours ago, only to see virtually all the gains from the Greece "bailout acceptance" non-news wiped out, and dipping by over 100 pips in the span of a little over an hour. The reason for this dramatic change in mood is attributed to a trading halt in Italian banks UniCredit and Intesa Sanpaolo both of which tumbled by 8% earlier before being halted. Among the reasons for the plunge cited by traders are rumors for a cap increase for UniCredit due to risk of not passing the stress test. There is also speculation that there was a major selling program advertised by Goldman several minute before the Moody's headlines of putting Italian banks on downgrade review. Attached is Reuters take. Bottom line - Europe is so jittery that no matter how the Greek hole is plugged, the law of connected vessels merely will mean that vigilantes will next focus their attention to one of the next two dominoes: Spain and Italy.
European shares pared gains on Friday as traders pointed to a suspension of trade of Italian banking stocks.
By 1028 GMT, the FTSEurofirst 300 .FTEU3 index of top European shares was up 0.6 percent at 1,082.12 points after trading as high as 1,088.79 earlier.
Trading in shares of UniCredit (CRDI.MI) and Intesa Sanpaolo (ISP.MI) was halted. After trade resumption UniCredit fell 3 percent and Intesa Sanpaolo lost 2.3 percent.
And from Bloomberg:
UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP) shares slumped in Milan after a review of lenders’ credit ratings sparked concern the European debt crisis may spread.
UniCredit, Italy’s biggest lender, led the decline, tumbling as much as 8.9 percent by 12:48 p.m. Intesa Sanpaolo, the country’s second-biggest lender by assets, slid as much as 7.2 percent. Both stocks were briefly suspended.
Moody’s Investors Service said yesterday it may downgrade 13 Italian banks because they would be vulnerable were the government’s credit rating to be cut. The ratings company said last week Italy’s credit ratings may be cut because of slowing economic growth and the potential for the sovereign crisis to drive the country’s borrowing costs higher.
“The downgrade by Moody’s may be furthered to encompass the long-term debt,” said Thomas Laschetti, a trader at Tullett Prebon Ltd. in London. “That is enough to create the right environment for deleveraging exposure to the sector.”
Unione di Banche Italiane ScpA (UBI), Italy’s fourth-biggest bank, today fell as much as 5 percent to 3.628 euros, below the price of the shares it’s selling in a 1 billion-euro ($1.4 billion) rights offering due to be completed today.