Today should be a “dull” day with most senior investors digesting the turkey. Despite this fact, there are some early moves in European major themes, Brexit and Italy, worth pointing out.

Raab is out again, this time saying:



Hardly surprising the GBP is hammered on the back of these comments, making Europe look like a fool yet again. The Brexit saga continues.

Let’s turn to Italy. We pointed out the big reversal in Italian bonds a few days ago. This move has continued and Italian 10-year yields are now trading at levels last seen on November 7th. Italian 10 year has not closed this low since then. We are approaching the big 3.3% level, where the longer-term trend remains intact as well as the 50-day average. These are actually rather big and important levels for the Italian 10-year yield. Watch it closely here. Should we see yields drop below these levels things can get interesting.

The biggest beneficiaries of the move lower in yields are the Italian Banks index, currently up 1.8% on the day. The sector is totally beaten down, but note the continuation of what we wrote a few days ago, there seem to be early signs of life. For any sustainable move higher, we need to see this index close above the big 8k resistance.

Note the recent small downtick in 1-month UCG and ISP (Italy´s two biggest banks) volatilities. As a side note, UCG, the second biggest Italian bank, has a market cap of 24 billion EUR, while DBK has a market cap of 17 billion EUR.

The MIB index continues to be the biggest main European underperformer, -14% YTD, but note how the index seems to be holding recent lows. Should this index take out the short-term negative trend, a squeeze move higher could prove to be rather violent.

For any possible “proper” bullish move in Europe, be sure to continue watching the credit space, iTraxx. We have been writing extensively about how poorly iTraxx trades. It continues to trade “stressed”.

Source: charts by Bloomberg