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Markets: Italy leads stocks after move on bad banks; Oil picking up

Milan’s FTSE MIB is in fashion with investors after Rome’s move to tidy up two failing banks, while oil stocks are joining a wider European equities rally as the rebound in crude prices holds.

What you need to know:

● Financial stocks higher after Italy acts on banks
● Italy’s FTSE MIB sets pace for Europe’s bourses
● Oil prices rally for second day
● Energy stocks join wider European equities rally
● Sterling higher against euro and dollar

Financial stocks are rising across Europe, with sentiment improving after Italy agreeing to set aside €17bn of taxpayers’ money into two failed mid-sized banks while handing their good assets to Intesa Sanpaolo, the country’s strongest lender.

The decision to wind up Veneto Banca and Banca Popolare di Vicenza came after the European Central Bank said they were failing on Friday.

In early European trade, the Euro Stoxx 600 banking index is up 1 per cent, while wider Italian stocks are outperforming their European peers, with the FTSE MIB up 1.3 per cent in Milan. The yield on Italy’s benchmark 10-year debt is little changed at 1.91 per cent, in line with the pattern on wider sovereign capital markets.

The reaction to Italy’s move comes at the start of the week when US authorities will publish details of their latest bank stress tests. The Federal Reserve will announce the outcome of the exercise on Wednesday.

The region-wide Euro Stoxx 600 is up 0.3 per cent, with the FTSE 100 up 0.6 per cent in London and the Xetra Dax up 0.5 per cent in Frankfurt.

The sustained rebound in crude prices is helping energy stocks. The Euro Stoxx 600 Oil & Gas index tracking the sector is up 0.5 per cent.

Brent crude, the international benchmark, is up 1 per cent at $46 a barrel. West Texas Intermediate, the US marker, is also up 1 per cent same amount at $43.44, with both benchmarks able to extend gains made on Friday.

Both were down around 4 per cent over last week, when Brent dipped below the $45 level for the first time since November and entered bear market territory, defined as a fall of 20 per cent from its most recent peak. In January, Brent hit an intraday peak of $55.24.

The region, the pound is standing out amid a wider trend for a flat dollar. The UK currency is up 0.2 per cent at $1.2746 and is also 0.3 per cent higher against the euro, which buys £0.8777.

The euro is unchanged at $1.1190. Overall, the dollar index is flat at 97.283.

Koon Chow, strategist at UBP says:

I think there is willingness in the market to ‘push the envelope’ with risk-taking as major European political risks are behind us while both the Federal Reserve and the European Central Bank have indicated very gradual policy normalisation.

Global equity and bond valuations are not at their extremes. Similarly exchange traded funds and other retail investor flows are not stretched. Commodity prices are one area of weakness but this may be because hedge fund investors are short here, as a counterbalance to their bullish risk trades elsewhere