Published: Sat, June 02, 2018
Business | By Pearl Harrison

Global stocks slump amid Italian political turmoil

Global stocks slump amid Italian political turmoil

Italy, which like Spain and Greece suffers from heavy debt, saw the yield on its debt rise dramatically as investors fled to the safety of the dollar and U.S. Treasury bonds. Bond yields dropped, and with them, interest rates on mortgages and other kinds of loans.

For southern European companies, the sudden resurgence of political jitters means credit conditions could quickly deteriorate, which would offset the benefits of a lower currency, Mateos y Lago said. He introduced dollar-for-dollar tariffs he said would remain until US leadership came to its senses. The political upheaval will likely lead to new elections, and investors are interpreting the new vote as a referendum and that Italy could move closer to abandoning the euro if populist parties win the election.

Additionally, Euro Zone inflation jumped far more than expected in May on higher energy costs, data showed on Thursday, bringing some relief to the European Central Bank after market turbulence that has jeopardized its planned exit from its crisis-era stimulus program.

"Eurozone membership will be at the forefront of the next election", said Alicia Levine, the head of global investment strategy at BNY Mellon Investment Management.

The new jitters about the stability of the euro sent the currency's value against the dollar to its lowest level in nearly a year.

CURRENCIES: The dollar rose to 109.53 yen from 108.83 yen. The euro sank to $1.1531, its lowest since July, from $1.1669.

MSCI's broadest index of Asia-Pacific shares outside Japan tumbled 1.4 percent, while Japan's Nikkei average sold off 1.5 percent to a six-week low.

The Dow is down 1.45 percent on the year. It was down as much as 505 earlier. The Spanish IBEX 35 sank 2.2 percent.

The S&P 500 fell 37 points, or 1.4 percent, to 2,683.

The Nasdaq composite fell 37.26 points, or 0.5 percent, to 7,396.59. Most Southeast Asian markets were closed for holidays.

Italian President Sergio Mattarella picked Carlo Cottarelli for prime minister after the anti-establishment 5-Star Movement and right-wing League refused to withdraw an anti-euro candidate as economy minister.

The government was formed after three months of political deadlock following inconclusive March 4 elections, with the pre-election rivals striking a last-minute deal on Thursday to avert a fresh vote amid growing market turmoil.

It looks like the debt-crisis days of 2012 all over again for investors, as Italian, Portuguese and Greek bond yields surged and billionaire George Soros warned of an "existential threat" to the EU.

"Pending better visibility on the new government's actions, Italian assets may continue to price in some policy uncertainty", Matteo Ramenghi, chief investment officer UBS WM Italy, said in a note. The sharp move higher reflects weakening confidence among investors in Italy's government.

The pan-European STOXX 600 index rose 1 percent, while German stocks gained 0.9 percent and Britain's FTSE 100 rose 0.3 percent. It dropped 1.7 percent to $66.73 a barrel in NY.

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