Italy bank deal lifts Europe shares

Shares rose in Europe on Monday with Italian banks gaining after a deal to wind up two failed regional lenders.

Dollar and U.S. bond yields held close to recent lows as subdued inflation raised questions over the outlook for monetary policy.

The-pan-European STOXX 600 share index rose 0.6 percent, led higher by banks after the agreement under which Italy’s largest retail bank, Intesa Sanpaolo will take on the remaining good assets of collapsed Popolare di Vicenza and Veneto Banca.

Intesa shares rose 3.2 percent. The Italian government will pay it 5.2 billion euros and give it guarantees of up to a further 12 billion euros. Investors have long viewed the Italian banking sector as a major cause of fragility within the euro zone.

In index of Italian banks .FTIT8000 was up 2 percent and the broader Milan market rose 1.1 percent.

Italian 10-year government bond yields rose 0.2 basis point to 1.91 percent, widening the gap over benchmark German equivalents by 2 bps to 165.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS ticked up 0.6 percent as tech led gains. Trading was slow with many markets in the region closed for holidays to celebrate the end of Ramadan.

Japan’s Nikkei rose 0.1 percent. Mainland Chinese shares rallied, with the CSI300 index rising 1.2 percent to hit its highest level in almost 18 months, after MSCI said the index provider could raise its weighting of China’s mainland-listed ‘A’ shares.

The euro rose 0.1 percent to $1.1204 with the dollar steady .DXY as the gap between short- and longer-dated U.S. government bond yields held close to recent 10-year lows hit on signs inflation is likely to remain subdued.

Investors greeted the election last year of U.S. Donald Trump as likely to lift inflation and with it U.S. interest rates but price rises have remained stubbornly subdued.

The Federal Reserve raised rates this month for the second time this year and has said it expects to raise again later this year. Futures imply only a 50 percent chance of a further hike by December.

Fed Chair Janet Yellen speaks on London on Tuesday and investors will be on alert for any clues to the rate outlook, after mixed views from other Fed officials in recent days.

The yen dipped 0.2 percent to 111.43 per dollar while sterling on the up since more Bank of England policymakers have either called or said they are likely to call for higher interest rates, rose 0,1 percent to $1.2741.

A major cause of lower inflation globally has been a fall in oil prices in recent weeks on signs an agreement by producers in the Organization of the Petroleum Exporting Countries is failing to curb a global glut of crude.

Brent crude LCOc1, the international benchmark, rose 59 cents or 1.3 percent to $46.13, buoyed by the weaker dollar. Oil prices are down around 13 percent since late May.

Dollar weakness also lifted copper. The industrial metal CMCU3 rose 0.4 percent to $5,823 a tonne, just shy of its highest since early April.

Gold fell sharply with traders citing anxiety ahead of U.S. economic data duiker later this week ECONUS.

Source : Reuters

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