Bloomberg
“Stocks Advance, Bonds Slide as Italy Concerns Fade: Markets Wrap.”
Stocks rose along with Treasury yields as investors deemed the market reaction to Italy’s political turmoil overwrought. The dollar slipped and oil rose.
The S&P 500 Index headed for the first gain in four days as U.S. 10-year yields pushed above 2.84 percent, boosting financial shares that had sold off on Tuesday as worries about Italy leaving the euro spread. The greenback declined the most in nearly three weeks. West Texas crude edged higher.
In Europe, Italy’s 10-year yield fell as much as 32 basis points as the country successfully passed a key test of appetite for its debt and rifts emerged between populist leaders. The euro rose the most since March, as German jobs data topped estimates and strong CPI readings across Europe added to the sentiment.
Traders are catching their breath after the unprecedented Italian bond slump spilled over into global risk assets. While the prospect of snap Italian elections — which could effectively become a referendum on the euro — continues to loom, some investors see the selloff as overdone while the timing of any vote remains unclear. Still, the concerns add to a growing list that includes the strength of the global economy, North Korea and simmering trade tensions.
Reuters
“Banks temper expectations for first ‘Volcker Rule’ rewrite.”
U.S. regulators are set to rewrite rules reining in banks’ risky trading behavior, making changes that will cut compliance costs but stopping far short of allowing firms to return to their gambling days seen before the 2007-2009 global financial crisis.
The Federal Reserve’s long-anticipated proposal to alter the so-called Volcker Rule on Wednesday marks another step by Trump administration regulators to ease banking rules in a bid to boost lending and economic growth.
Part of the 2010 Dodd-Frank financial reform law, the Volcker Rule is aimed at preventing banks from making market bets while accepting taxpayer-insured deposits. It has forced many Wall Street banks to overhaul their trading operations and hive off billions of dollars worth of hedge funds and private equity funds. Banks have long complained that the rule, which took four years to write and runs at more than 1,000 pages, is vague and complex, creating a disproportionate compliance burden and limiting their ability to facilitate investments and hedges for investors.
JPMorgan Chase & Co chief executive Jamie Dimon was once quoted as saying traders would need a lawyer and a psychiatrist by their side in order to prove their trading intentions complied with the rule.
The proposed changes will also likely tailor compliance requirements to an institution’s size and alter aspects of the rule so it no longer encroaches upon some overseas firms, the people said.
JPMorgan is looking forward to more clarity on its requirements and to spending less to prove compliance, Daniel Pinto, chief executive for the bank’s corporate and investment banking business, said at an investor conference on Tuesday.
BBC News
“Italy pays higher prices to sell government bonds.”
Italy has offered the highest returns in four years to sell government debt amid political uncertainty. Investors demanded a higher return to take on Italian debt, with the return on 10-year government bonds rising to about 3% – the highest since 2014.
However, there was healthy demand for the bonds and the Italian government raised €5.6bn ($6.5bn; £4.9bn). Meanwhile, global stock markets recovered and the euro rose after a turbulent session on Tuesday. The Milan market rose 1.6% in afternoon trading and Frankfurt was 0.6% higher, but the FTSE 100 in London was flat.
Paris fell 0.5% after a sell-off in shares in French banks amid concerns about their exposure to Italy. Wall Street also opened higher, with the Dow and S&P rising about 0.5% respectively. Seema Shah at Principal Global Investors said: «Demand at today’s auction was very encouraging, and clearly indicates that investors still have faith in the Italian economy, if not the government. Italy is unlikely to face major refinancing problems in the near term.»
Barclays investment strategist Hao Ran Wee said: «No investor would lend to the Italian government if they deem it as being unable to pay back its debt.» Reports on Wednesday said that the anti-establishment Five Star Movement and far-right League had renewed efforts to form a coalition government after the president rejected their choice for the economy ministry over the weekend.
The parties were trying to find «a point of compromise on another name» after the president’s rejection of arch-eurosceptic Paolo Savona for the ministry. The European Central Bank was watching events in Italy but not considering intervention at this time, it is understood.
Bloomberg
“The Bad Days Have Been Really Bad in 2018’s Stock Market.”
None of the narratives floating around the market make any sense. Bond yields are too high, and too low. Politics don’t matter, then they do. There’s excessive inflation, or not enough.
But one message the market keeps sending: don’t get comfortable, because around the corner is pain. Stock traders have been chained to their screens in a year when the average down day is 24 percent bigger than the average up one, the biggest gap since 1948.
It played out again Tuesday as investors were treated to a session of price swings that would have ranked with the worst of the preceding two years — but in 2018 doesn’t crack the top 20. Phrased differently: the biggest decline in the S&P 500 last year, a 1.8 percent drop on May 17, would rank as the eighth largest since January. And it’s only May.
Only one thing has been constant in 2018, that every few weeks equities get hammered. U.S. companies are in the midst of one of the biggest earnings expansions ever, everything from buybacks to capital spending is surging and forward valuations are cheap. But it’s proving little barrier to intermittent wipe-outs.
It often seems as if good news is right on the verge of drowning out the bad. Like last week. Moods in the market brightened. The VIX eased. Data from Investors Intelligence showed newsletter writers classified as bulls reached the highest in almost two months. Statistics from Ned Davis Research Inc. reflected a similar trend. Everyone’s favorite stocks, the Faang block, vaulted to records just last week.
Then political uncertainty in Italy flared up, sending ripples across Europe. And the S&P 500, which had swung an average of 0.3 percent the previous 10 sessions, fell four times that on Tuesday. The Cboe Volatility Index spiked 29 percent, the most since March, to 17.02.