In Greece tensions over reforms are once again mounting with creditors – this time over an IMF demand that shops remain open for business on Sundays. Helena Smith reports:

Most EU member states would relish overhauling a relic of old times like the ban on Sunday shopping. In Greece, though, it is the sort of measure that makes for front-page splashes, conspiracy theory and cries of protest.

But the International Monetary Fund, in the spirit of further opening up one of the continent’s most sclerotic economies, is not letting go. Instead the Washington-based body, which is still negotiating its participation in Greece’s latest bailout, has stepped up demands for trade to be liberalised saying shops should remain open on Sundays. Moreover, it argues, the reform will give people work in a nation hobbled by record levels of unemployment.

In its splash today, the daily Ethnos newspaper, citing a leaked email from the IMF, reports that closure of an ongoing review of the economy by creditors – the second since Athens received its third bailout last summer – is now contingent on shops opening up for commerce on Sundays. The organisation wants the measure to be signed and sealed this month. So far the response has been negative. Ministry of finance officials told the paper that, instead, they will push through an amendment that will allow shops in specially defined tourist areas to stay open. That’s unlikely to pass muster with lenders who have signalled they are going to rachet up the pressure on Greece to enforce the sort of reforms that will make it more competitive. Ideologically, the governing leftwing Syriza party is said to be against the move on the grounds that it will not only benefit bigger stores but is an infringement of basic workers’ rights.

The Greek Orthodox Church has already likened the step to a sin and shop employees, who have already taken to the streets, are girding for further battle.

And here’s our full story on Matteo Renzi planning to resign later as Italian prime minister:

One of the factors supporting the market rally is the expectation that the European Central Bank could announce an extension of its bond buying programme following its latest meeting on Thursday:

[APP is the asset purchase programme]

That hope, and optimism that Italy’s struggling banks can somehow be recapitalised, have combined to send European markets higher, with Germany’s Dax up 1.8%, France’s Cac 1.1%, the FTSE 100 1.6% and Italy’s FTSE MIB 1.5%.

On Wall Street the Dow Jones Industrial Average has hit a new intra-day record of 19,276, despite concerns about healthcare companies after Donald Trump said he would look at drug pricing.

Markets continue to be buoyed by hopes of a resolution to Italy’s banking problems. Connor Campbell, financial analyst at Spreadex, said:

With the Italian government passing its 2017 budget, and Mario Renzi confirming he will resign this evening, the European markets maintained their banking-boosted growth this Wednesday.

The continued lack of fuss following the Italian referendum result, combined with the prospect of a Monte dei Paschi bailout (potentially as soon as this week), has led the European indices to a bevy of highs this afternoon. The CAC is still at an 11 month peak, while the DAX, following a near 200 point rise, is at its best price in exactly a year.

The highs hit by the FTSE were a bit less impressive, though its 110 point increase does leave the UK index just 10 points away from 6900, a level it hasn’t seen since November 10^th. While most of the pan-European growth has been inspired by the rallying banking sector, the FTSE has also benefited from a commodity stock rebound and the latest pound-plunge, with sterling shedding 0.8% against the dollar and 1.1% against the euro.

But Michael Hewson, chief market analyst at CMC Markets UK, warned markets could be getting ahead of themselves:

Talk that the Italian banking system could be on the verge of a €15bn bailout from the European Stability Mechanism has pushed equity markets in Europe to their highest levels in several months...

While the reports of a bailout request have been denied the usual rule of thumb when these sorts of reports do the rounds is that there is usually an element of truth to them, even if we don’t know the exact mechanics, and markets are responding to that.

As with most things the devil is likely to be in the detail, and the likely strings that are likely to be attached to any aid request, if and when it comes. It is here that markets could be getting ahead of themselves.

Another area likely to be hit by the uncertainty of the UK leaving the EU is the Irish banking sector, according to ratings agency Fitch. It said:

Fitch Ratings has revised the 2017 sector outlook for Irish banks to stable from positive, as the UK’s vote to leave the EU increases uncertainty for the operating environment. Ireland’s economic recovery should remain strong in the short term, underpinning the stable sector outlook. The rating outlook on Irish banks is positive, reflecting our expectation that improving bank credit fundamentals should outweigh these challenges.

Brexit is negative for Ireland’s long-term economic and political prospects, putting pressure on GDP growth and creating uncertainty around relations with Northern Ireland. The extent of any weakening of the bank operating environment, triggered by a slowdown of GDP growth in the UK, sterling depreciation, or potential trade barriers, will become clear only as EU-UK negotiations develop. A deterioration in the operating environment could slow any improvements in the asset quality and capitalisation of Irish banks...

Capitalisation, although improving, remains vulnerable. We expect capital ratios to strengthen in 2017, despite pressure from volatility in pension fund deficits and foreign-exchange markets. Fully-loaded regulatory capital ratios remain weaker than international peers, primarily due to large amounts of deferred tax assets; these assets are reducing slowly because of Ireland’s low corporate tax rate and relatively low levels of profitability compared to the size of the balance sheet. Large, albeit reducing, stocks of unreserved problem assets also leave Irish banks’ capitalisation more exposed if the operating environment deteriorates.

Further improvements in asset quality and capitalisation would improve the banks’ risk profiles and may result in ratings upgrades; this is why the ratings outlook for Irish banks is positive. Although uncertainty as regards the operating environment has increased, we believe credit fundamentals will improve in 2017, as the sector continues to work through its backlog of impaired loans.

But... Bloomberg is reporting that Renzi might be having second thoughts about stepping down.

They say:

Matteo Renzi is wavering on whether to stay on as Italian prime minister despite his resignation offer after Sunday’s referendum defeat, according to a senior state official.

President Sergio Mattarella wants Renzi to reconsider his decision in order to provide political and economic stability, said the official, who asked not to be named because the issue is confidential.

Here’s the full story.

Back in the markets, European stocks are hitting multi-month highs on continued optimism that Italy’s banking sector will receive much-needed fresh capital soon.

Every index is sharply higher today, with some traders speculating that the fabled “Santa Rally” might be kicking off (stock markets often rally in the run-up to Christmas).

Over in Milan, Monte dei Paschi is still having a good day, up 8%, following the reports that the Italian government could take a €2bn stake in the bank.

And the suggestions that Rome could turn to the ESM for a €15bn bank bailout continues to calm fears of an imminent financial crisis.

Kathleen Brooks of City Index says:

Even the prospect of a nationalisation [of Monte dei Paschi], potentially as early as this weekend, isn’t spooking the markets as it may avoid retail bondholders having to take any losses.

The FTSE 100 index is now up by 100 points, or 1.5% at 6880 -- a chunky rise. However, that’s partly because the pound fell at 9.30am when October’s weak UK manufacturing data were released.

The German Dax is still at a one-year high, the French CAC is at its highest level since January, and Italy’s FTSE MIB it at its highest level since June.

EC antitrust commissioner Margrethe Vestager declined to comment directly on the Monte dei Paschi rescue talks.

But she did point out that the commission is keen to support citizens who have been missold financial products.

That could be significant, as the small retail investors who own Italian bank bonds may argue that they were deceived about the risk of being possibly ‘bailed into’ a rescue. And some analysts reckon the Italian government could circumvent those new bail-in rules by compensating these small investors.

Vestager told reporters in Brussels that:

“One of the things that we are working with is tools to enable governments to compensate for mis-selling of different kinds.

“It is something we have set up before. We will work with governments again if they want to set up schemes that can allow citizens to be compensated if mis-selling has been taking place.”

Today’s fines mark the end of the euribor scandal, hopefully, Vestager continues.

But....

The Commission will not hesitate to investigate and sanction any other cartel it may uncover in the future in the financial industry.

Commissioner Vestager is outlining the euribor ruling now.

You can watch it live here.

She says JP Morgan, HSBC and Credit Agricole all breached antitrust rules by conspiring to rig the euribor rate.

The euribor market is means to provide protection from market volatility in euro-denominated securities, Vestager says. If this market is rigged, it will benefit only a few.

Traders used IM services and corporate chatrooms to exchange confidential information to distort the euribor rate to serve their own interests, she adds.

Euribor was calculated from submissions from individual banks, which created the ability to rig it.

Vestager cites one example, from 19th March 2007, in which the cartel members decided they would benefit from a lower euribor rate. So, weeks earlier, they conspired to submit low numbers to the committee which calculated the daily figure.

(this will sound depressingly familiar to anyone who’s read about the Libor scandal).

Here’s the details of the euribor-rigging fines just announced by the EC.

• JPMorgan: €337.2m
  
• HSBC: €33.6m
  
• Credit Agricole: €114.7m
  

Margrethe Vestager, the EU’s antitrust commissioner, says:

“Banks have to respect EU competition rules just like any other company operating in the single market.”

These fines come three years after four other banks were fined over Euribor rigging, Barclays, Deutsche Bank, RBS and Societe Generale.

City experts are pretty unimpressed by the slide in UK manufacturing in October:

That disappointing UK manufacturing report has hit the pound, sending it down 0.5% against the US dollar:

The Office for National Statistics reports that most areas of manufacturing struggled in October, led by pharmaceuticals, where output shrank by 3.6%.

This chart shows how Britain’s manufacturing sector weakened in October, after two months of gains:

Every single Italian bank share has risen this morning, led by Monte dei Paschi which is currently 7.7% higher.

Looking away from Italy, the big news this morning is that drugs giant Pfizer has been hit with a record fine after the price charged to the NHS for an anti-epilepsy drug was hiked by up to 2,600%.

Boom! Germany’s DAX stock market has hit its highest level in a year, while France’s CAC is at an 11-month high.

European stock markets are all rallying this morning, with banking stocks boosted by Italian bailout hopes.

The main indices are up around 1%, pushing the FTSE 100 up by almost 60 points to 6837.

La Stampa’s report that Italy may seek European help for its banks is cheering the City:

In London, mining stocks are also gaining ground, with Rio Tinto and Antofagasta both up 4%.