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Market Movers Italy.

Banca Monte Paschi

BMPS.MI, the oldest bank in the world, has started its capital raising on Monday. After the stress tests, ECB imposed to two banks to increase their capital requirement in order to meet ECB’s criteria, CET1 at 10.5%. Just to remember CET1, which stands for Common Equity Tier 1, is the measure of Equity the bank has in comparison with the amount of assets weighted for their risk factor. Company, may have risk factor close to zero, while form of debt to junk companies may have 100%. The new capital raising amounts to €3bn, and is structured by a consortium of Banks led by UBS and Citigroup, who are the preferred advisors by the bank for capital raising and rights issue. This is the second day when both rights and shares are being traded. Today, rights and shares are down more than 10%. This capital raising presents many anomalies like the deep dilution of shares’ price, which are offered to shareholders at a price of €1.17. When there is a strong dilution, rights may float at higher prices than their theoretical value. Let’s see how is going to end this new operation that could be seen as an end of a nightmare for the Bank.

For those braves who feel at ease in riding the volatility, there may be some opportunities in the anomalies of price movement. Personally, I took some call warrants on BMPS.MI, because I am confident that, at this particular moment, the capital raising will be a success, and the bank could be again on track for a full recovery.

24th Semptember

Week Recap

This week, financial markets have been led in their upward trend by the voices coming from Central Banks. On Tuesday, two ECB officials, Coeuré and Noyer, declared that the European Central Bank is purchasing in May and June larger amount of assets, in order to cope with the issue of scarce liquidity in the bond markets between July and August. This news pumped up all major European Markets as leading the dollar into a new surge, reaching EUR/USD 1.1009. During this week, a various number of meetings occurred between Greece and European officials. In Monday, Athens officials assured the public that a potential deal with IMF and creditors was likely to be reached. From Wednesday, rumors spread the news that Greece will not be capable of paying back the $305m tranche to the IMF, which in later days appears to be confirmed. I agree with the voices that see the Exit of Greece, the so-called Grexit, as a potential Lehman Brothers alike financial disaster. Not considering the political disaster the crash of the European Union would mean this event would shake up all assets classes very badly. The anomalies in the German Bond Market in the past few weeks showed how fragile the situation is by now. At this level of prices, especially in peripheral Europe, Grexit (in my opinion) would cost a 30% crash in the markets, and unquantifiable difficulties in the real economy. In Markets, sell-offs are more brutal and violent then upward movements. A CRISIS CAN BE ANY MOMENT AT YOUR BACK. Plan Carefully. On the Macro side, the ZEW Index, which measures the Economic conditions of Germany, based on economists’ consensus, was below expectations: Economic Sentiment at 41.9, EXP 49.0. Nevertheless, German DAX was able to report a weekly 3.21% settling at 11815. FTSEMIB closed at 23782, +1.31%, IBEX 11554, +2.1%, FTSE100 7013, +0.76%, CAC40 5143, + 2.99%, Lisbon PSI20 6102, -0.3%.

On the US market operators’ sentiment was mainly driven by earnings’ results coming from Retail Giants, and macro data. Wal-Mart Inc., failed in meeting expectations, quarterly EPS was 1.03, EXP 1,04. Home Depot beat the estimates with q. EPS 1.16, EXP 1,15. Target on Wednesday beat the estimates with q. EPS at 1.1, EXP 1.03. Lowe’s missed analysts’ expectations, reporting q. EPS at 0.7, EXP 0.74. Retail Earnings are very important in America because they mirror the consumer’s spending attitudes. Retail Sales on a macro level fell. Wal-Mart showed lower sales growth rate than expected. Consumers do not seem aligned in giving up money for spending. On the macro side, from the housing market, Housing Starts MoM increased 20.2% and Building permits MoM 10.1%. Real Estate data are a very important indicator of the soundness of the Economic recovery in US. Increased starts mean more contracts signed and more inflows of liquidity, making the market more flexible to meet demand and to expand one of the invoices of Consumer Spending. The FED published the minutes of the FOMC on Wednesday, in which FED officials observed that a rise in interest rates may be expected for the next semester. No major macro indicator is expected to be published next week. Volatility in the market will be triggered by developments of the situation in Greece. DJI closed at 18351, reporting a weekly -0.22%, NASDAQ 5085, +0.81%, S&P500 2126, +0.16%.

On the other side of the financial world, the Nikkei topped multi-year high reaching 20264 and a weekly performance of +2.69%. Wednesday, GDP data have been released. Abe’s Japan topped estimates: 0.6% increase on a Quarterly basis, EXP +0.4%, and +2.4% on a Yearly basis. This long rally lead the Index to levels never reached after 2000. The Hang Seng closed at 27992, with a weekly +0.39%. KOSPI closed at 2146, with a weekly +1.89%.

CAC40DAX30DJIIBEXNasdaqNikkeiS&P 500

Euro Dollar. Bulls&Bears

EUR/USD Week Recap | 18th-22 th May 2015

This past week, The EUR/USD pair followed a bearish trend, starting its decline back on Monday going from 1,1466 to the three weeks lowest level of 1,1013 as Friday 22th. EUR depreciation was expected as an ECB Officer recently spoke about a boost of the QE in the months of May and June, as a manner of contrast to the expected bond market slowdown in July and August. QE is generally negative for a currency as it contributes to drive rates down. On top of this, Greece troubled position still remains unclear to the market and an exit could not still be excluded, and this event for some could be as harmful for the European Financial Markets as the Lehman’s chapter 11.

On the other side, US economy is performing weaker than expected as shown from data such as manufacturing and retail sales that led to a downward revision of the first-quarter annualized growth rate, initially estimated at 0,2%. Moreover, consumer spending is generally low, even though an increase due to low oil price was expected and this brought concerns about the status of real economy. Industrial and manufacturing production are still below expectations. For these reasons, several FED officers strongly believe that the interest rate hike will definitely be postponed.

Next week it is expected to be very calm for the EUR/USD pair, as very few new macroeconomic data of minor importance will be released. According to my analysis, unless some changes occur with Greece, the EUR/USD pair will keep stable with minimal EUR depreciation (EUR/USD goes down) as the overall outlook of the American economy seems more substantial and stable than the European one.

  EUR-USD

By:

Ludovico Buffo, Master Student

Ludovico.Buffo

Day Topic: Deutsche Bank Annual General Meeting, 20/05/2015

Today in Frankfurt the General Meeting of Deutsche Bank took place, more than nine thousands shareholders signed in for the event. At the very heart of the discussion there was the 2020 plus strategy agenda, the program has been discussed throughout the past years with also some extreme options considered, such as the exit of the firm from the investment banking industry. Alongside the topics related to the future strategy the result of the 2015 strategy have been presented and an important part of the presentation has been dedicated to the latest litigation for misconducts that have shaken the banking sector.

Looking at the past four out of six goals from the previous plan have been reached by DB management, the firm have experienced an increase of capital strength (result supported also by the first ECB stress tests) and a more efficient network, with a more focused approach on the company’s core areas (investment banking, corporate and private banking, retail banking and asset and wealth management). The management in 2012 has also launched a cultural change programme that is showing its first results, however fraudulent behaviours from employees are still taking place and they are generating a big chunk of the legal fees. Costs and legal fees are the areas where the management missed the expected improvement and they are the bridge between the past and the future strategies. For the future DB is expecting to tackle even harder its costs structure with a reduction of the IB division balance sheet and the closure of some branches around the world in order to allow a better focus on attractive areas. On the retail banking side the company is planning to split up Deutsche retail division and Deutsche PostBank given the low level of synergies between the two customer clusters and new capital legislation.

The Management has been put under pressure by unsatisfied shareholders judging results not in line with their expectations. The Co-CEO Anshu Jain in now the direct supervisor of the restructuring plan, which will follow the pillars of the new strategy plan as defined in the meeting. Management have been incapable of securing a good stock return the last year. Deutsche Bank’s shares are one of the worst performers among peer in the last year. The new strategy will require a massive €3.5bn cost-cutting program.

Financial performance of 2014 as also been presented to the shareholders, DB has hugely increased its pre-taxes and after-taxes results for the period with an improvement in revenues in all the core business areas but the achievements are also due to a decrease in legal fees and loan-loss-provisions for the previous period. However in the first quarter of this year litigation expenses are already bouncing back to historical highs mainly for the LIBOR and exchange rates scandal.

By

Andrea Mangone, Master Student

2843589

Trade Ideas

A new week is coming, with new trades ahead.

We can see that American Indexes have set their all time high, S&P 500 is at 2122, Nasdaq 5048, DJI at 18272, very close to the resistance at 18288 reached on the 2nd March 2015. American Indexes have been going through a lateral consolidation since many days by now, and finding a trend in the  mid-short term is very hard. I would recommend to stay in the range  of prices, selling at maximums, and waiting for selloffs to  enter in new long positions. All the fluctuations in merican equities will be driven by news from the real economy.

DAX, who is among the stock indexes who rallied the most after the announce of the QE on  22nd January 2015, reporting from December 2014 till the peak at 12374 on April 10th 2015, a 29% increase, found a support point in area 11250, a -9% from the peak, before remounting up till 11700 and settling at 11417 on friday. I personally took a long position on the DAX through a structured product called turbo certificate when the underlying was at 11270, made some trade and at the end I reported, in 4 days, a total gain of 60% of the position by selling the certificate at DAX 11620 (the certificate  price went up from €3.85 to €6.15). In my opinon, in the very short term I see a potential for downwards. After the below expectation GDP results (I have to say that even if below expectations, a yearly growth  of 1.3% is still remarkable in this particular moment in Europe, where Italy reported a yearly 0.0% growth), market makers and other  players have started to sell positions on German Equities. The index plummeted also due to the turbulence on the bond Market, where 30Y Bund yield rocketed  up to +27%, from 1.1% to 1.4%. Bill Gross, Janus Capital, said in previous days that he started  to accumulate short positions on German Government bonds. Now, yields have started to lower again. Factors which will influence the fluctuations of the DAX will stem from the situation in Greece, which is now running out of  liquidity. In the case of Grexit, i would run away from the markets. The exit of Greece  from the Euro would be an horrific nightmare in all markets, Fixed Income, Currency, Equities… This event have an approximately 30% possibility (my personal estimation) of happening. Any uncertainty over the  soundness of Greece cash reserve will create turbulence. 11000 is a good point for taking a long position on DAX. I would recommend taking a long position in that area. Macroeconomic data from US and China will also trigger some volatility. To sum up with, in the Long run German equities are BULLISH. Riding volatility, and finding the right entry point for a LONG position in DAX instruments ( I use certificates and warrants because I consider securitized derivatives more safe for mantaining adequate amount of capital and avoiding margin’s vicious circles) may lead to profit. $$

Po$t $criptum

I attached two files showing the chart of the DAX and a personal technical analysis on the Dow Jones. Both charts have been created using R. If you like them I will post others.

$tay Tuned!!!

DAX

Dow_Jones

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