Market commentary: BNP Paribas receives US government waiver

Banca Monte dei Paschi di Siena

Italian newspaper Repubblica reported that Banca Monte dei Paschi di Siena and Nomura might close a derivatives transaction "Alexandria" with potential costs of €850m and a negative P&L impact of €400m for the Italian bank.

This is expected to cure the recently reported large exposure breach for Monte, while it is not exactly clear how much of the costs are already reflected in the ECB's capital assessment of Monte. Separately Monte agreed to sell its 10.3% stake in Anima Holding to Poste Italiani for €210m and a positive P&L impact. Overall both are elements in the long and complicated program to fix the bank.

BNP PARIBAS

The largest French bank received a government waiver in the US which allows its affiliates to continue to operate as asset managers in the North American territory. The news is positive to the extent that it removes some previous doubt about this issue.

Investment Banks

In line with recent earnings announcements and comments by various analysts it looks like investment banks are set to report a good first quarter if JP Morgan's results are a guide. JPM's investment banking fees were up 22% year on year (yoy), driven by a 42% increase in Mergers & Acquisitions, while trading revenues improved 9%.

Even Fixed Income, Currencies and Commodities were better within that with a 20% underlying increase yoy, which should also be reflected in European IB's forthcoming results. Barclays, BNPP and Deutsche should be beneficiaries from this, although it could only be a short-term boost.

ECB

Today we expect the regular rates announcement, followed by a Draghi press conference at 2.30pm CET. I don’t expect any major shake-up in interest rate policy, yet what is of interest is any insight into the success of the QE implementation to date. As far as positioning goes, remain long European investment grade credit seems to be the consensus trade.

China GDP Figures

China is the main focus after Q1 GDP fell in line with expectations at 7.0% yoy. Other data indicators were soft however. Retail sales (10.2% yoy vs. 10.9% expected), industrial production (5.6% yoy vs. 7.0% expected) and fixed asset investment (13.5% vs. 13.9%) were all below market.

The GDP reading is the lowest since 2009. After all the data Chinese equities have been volatile, initially rising +0.6% with the hope of more stimuli on the horizon, before then selling off.

US Earnings/Data

Better than expected corporate earnings out of both JP Morgan and Johnson & Johnson before the open initially helped lift sentiment, however these modest gains were quickly wiped out following the March retail sales print out of the US.

Both the headline (+0.9% mom vs. +1.1% expected) and core (+0.5% mom vs. +0.6% expected) came in below market, causing the S&P 500 to sell off and eventually strike an intraday low of -0.5%, before a rally in energy stocks (+1.77%) helped drag the index back into positive territory as WTI (+2.66%) and Brent (+0.86%) closed higher.

Greece

European officials have indicated a deal is unlikely to be reached by the April 24th Eurogroup meeting attracted attention. According to German press Handelsblatt, EC Vice-President Dombrovskis said that the EU is unlikely to agree to Greek aid this month given the lack of readiness by authorities to reform pension and labour markets. EU ministers will instead take stock of progress according to the report.

This article was issued by Simon Psaila Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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