The Italian budget saga continues early this Monday. Last week we pointed out some positive “psychology” was forming in the Italian markets. Yields were coming down and we saw some stability in Italian equity markets. In our note we concluded “…there seems to be early signs of life”.

This morning we are seeing the below headline cross our Bloomberg screens.


Expect more political rhetoric and headline news risk, both ways. For now, the focus will be the upside.

Italian 10-year yield is crashing further, down 17 points on the day, definitely “confusing” the crowd. This is a huge move. Note the break below the 50-day average, as well as the trend line, was taken out. Next big level is at 3%.



We pointed out both UCG and ISP as main Italian banks looking very interesting for a move higher in outpost last week.

The top gainers today so far in the European banks’ index, SX7E, clearly all led by Italian banks.



UCG is putting in a huge gap higher today. UCG is also a good play for the stabilizing Turkish situation as well as other emerging markets related assets (MS upgraded the EM space today).



The MIB is on fire, +3% on the day. We pointed out to our readers last week: “Should this index take out the short-term negative trend, a squeeze move higher could prove to be rather violent”.

This violent move is just unfolding, killing shorts. The move is probably exaggerated by “hedge(d) funds” all having piled into “fundamental” negative trades regarding the Italian situation.



Just as we pointed out over the past week, for any sustainable move higher, European credit, iTraxx main needs to come down. It is gapping lower by 3.5% in early trading. Watch this space very carefully. Credit has been a huge drag on the markets lately. Should credit stress easy a bit, equity markets could be experiencing a classical Heinz ketchup moment.

Our take of crowded positions continuing to cause huge p/l pain continues.


Source: charts by Bloomberg