Incisive market commentary from David Morrison

Stay ahead with our market commentary and webinars from our in house market strategist

Open a Live AccountOpen a Demo Account
+ Show blog menu



Expand 2017 <span class='blogcount'>(308)</span>2017 (308)
Collapse 2016 <span class='blogcount'>(483)</span>2016 (483)
Expand December <span class='blogcount'>(23)</span>December (23)
Expand November <span class='blogcount'>(41)</span>November (41)
Expand October <span class='blogcount'>(37)</span>October (37)
Expand September <span class='blogcount'>(41)</span>September (41)
Expand August <span class='blogcount'>(52)</span>August (52)
Collapse July <span class='blogcount'>(38)</span>July (38)
Dark clouds ahead?
29 Jul 2016
BOJ underwhelms – JPY soars
29 Jul 2016
PM Bulletin: BOJ look-ahead
28 Jul 2016
AM Bulletin: FOMC leaves rates unchanged
28 Jul 2016
PM Bulletin: Yen swinging wildly on stimulus talk
27 Jul 2016
AM Bulletin: Fed rate decision and FOMC statement in focus
27 Jul 2016
PM Bulletin: FOMC look-ahead (and Japanese stimulus talk)
26 Jul 2016
AM Bulletin: FOMC meeting begins today
26 Jul 2016
Platform Tours: CFD Trading - Check Open P & L
25 Jul 2016
PM Bulletin: EURUSD breaks below 1.1000
25 Jul 2016
Weekly Bulletin: Fed and BOJ in focus
25 Jul 2016
PM Bulletin: Sterling looking vulnerable again
22 Jul 2016
AM Bulletin: Stocks lower as oil weighs
22 Jul 2016
PM Bulletin: The EURUSD and the ECB
21 Jul 2016
AM Bulletin: ECB rate decision ahead
21 Jul 2016
PM Bulletin: ECB look-ahead
20 Jul 2016
AM Bulletin: Q2 earnings keep markets buoyant
20 Jul 2016
PM Bulletin: A look at the yen
19 Jul 2016
AM Bulletin: More records for US equities
19 Jul 2016
PM Bulletin: Precious metals pull back
18 Jul 2016
Weekly Bulletin: It’s all about stimulus
18 Jul 2016
PM Bulletin: European banks in trouble
15 Jul 2016
AM Bulletin: Sombre mood following Nice atrocity
15 Jul 2016
PM Bulletin: The BoE rate decision
14 Jul 2016
AM Bulletin: All eyes on Bank of England
14 Jul 2016
PM Bulletin: BoE Rate Decision in focus
13 Jul 2016
AM Bulletin: Equities drift lower after record US close
13 Jul 2016
PM Bulletin: Global indices pushing higher
12 Jul 2016
AM Bulletin: Equity rally powers on
12 Jul 2016
PM Bulletin: Fresh record high for S&P500
11 Jul 2016
Weekly Bulletin: The markets called, NFPs answered
11 Jul 2016
AM Bulletin: The calm before the storm; Markets await today’s NFPs
08 Jul 2016
PM Bulletin: Non-Farm Payroll look-ahead
07 Jul 2016
AM Bulletin: As the Fed turns dovish, the markets turn bullish
07 Jul 2016
AM Bulletin: Concerns continue as Sterling touches $1.27
06 Jul 2016
AM Bulletin: Markets open higher, weak UK Construction PMI data removes confidence
05 Jul 2016
Weekly Bulletin: Central Banks react to Brexit vote
04 Jul 2016
AM Bulletin: When Carney speaks, the markets listen
01 Jul 2016
Expand June <span class='blogcount'>(42)</span>June (42)
Expand May <span class='blogcount'>(42)</span>May (42)
Expand April <span class='blogcount'>(45)</span>April (45)
Expand March <span class='blogcount'>(41)</span>March (41)
Expand February <span class='blogcount'>(42)</span>February (42)
Expand January <span class='blogcount'>(39)</span>January (39)


Investors raised a cheer yesterday after JP Morgan (JPM) posted a strong set of second quarter numbers. The US banking giant reported earnings per share of $1.55 which was way above the $1.43 consensus estimate. Revenues came in at $25.2 billion on expectations of $24.16 billion.

Earlier today Citigroup (C) also pleased the markets when it reported earnings per share of $1.24 with revenues of $17.55 billion. This compared with consensus expectations of $1.10 and $17.47 billion respectively. However, it’s worth noting that yet again earnings and revenues were well down on the same period last year. US stock indices may be trading at record highs, but the earnings and revenue recession carries on.

But while investors seem convinced that US banks are on the mend, it is the European banking sector which continues to cause concern. As the chart below of STOXX® Europe 600 Banks indicates, the sector is in trouble:

PM Bulletin

Chief amongst the problems is Deutsche Bank. This one-time giant financial institution now has a market capitalisation of less than €18 billion. This is a big issue which even the International Monetary Fund (IMF) acknowledges. According to the Fund Deutsche is not only a “globally systemically important financial institution” but also one of the riskiest banks in the world. As the chart below shows, the share price reflects investor concerns. 

PM Bulletin

But Deutsche isn’t the only European bank having problems. Italy’s banking sector is also facing a potential tsunami of grief with an estimated €360 billion of non-performing loans on their collective balance sheets. Just to put this in some perspective, Italy’s nominal Gross Domestic Product (GDP) is around €1.6 trillion per annum which means that the banks’ potential bad debt is equivalent to more than 20% of the country’s GDP.

There has been talk of the Italian government putting together a rescue package to bailout the Italian banks. However, new Euro zone rules say that this can only be done if bondholders take losses first. Generally this wouldn’t be too much of a problem as bank bondholders tend to be pension funds and other large financial institutions. However, in Italy’s case it is retail investors who hold around €200 billion in bank bonds. Private individuals and small businesses were encouraged to purchase bonds in the country’s banks through favourable tax breaks. Consequently, unless the EU changes the rules, any bailout will hit Italian savers hard and for this reason it is politically unpalatable, to say the least.

But as things stand a rule-change seems unlikely. Just this week Dutch finance minister and Eurogroup head (the group comprising EU finance ministers) Jeroen Dijsselbloem responded to a call for a €150 billion European bank bailout fund by saying he would resist it “very strongly”. But Italian Prime Minister Matteo Renzi’s Democratic Party is fervently pro-euro and EU. Brussels may feel it is better to bend the rules for Italy now rather than say “no” and face the prospect of the anti-EU Five Star party making sweeping political gains in the future.

David :  Italy’s banking sector is also facing a potential tsunami of grief with an estimated €360 billion of non-performing loans on their collective balance sheets.


Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.


Posted by David Morrison

Tagged: Bulletin

Category: PM Bulletin

Add a comment Add comment            


© 2017 Spread Co Limited. All Rights Reserved.

Spread Co Limited is a limited liability company registered in England and Wales with its registered office at 22 Bruton Street, London W1J 6QE. Company No. 05614477. Spread Co Limited is authorised and regulated by the Financial Conduct Authority. Register No. 446677.

Spread betting and CFD trading are leveraged products and can result in losses that exceed your deposits. Ensure you understand the risks.

Losses can exceed deposits. Click here to learn more.