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Markets Right Now: Italy gridlock shakes up global markets

02 June, 2018, 16:21 | Author: Melinda Barton
  • Fears over Italy turmoil spread through global markets

Stock markets turned higher on Friday after some losses in Asia as investors digested strong jobs data in the US, the risk of mounting trade tensions and an easing in Italy's political uncertainty.

The S&P 500 index sank 31.47 points, or 1.2 percent, to 2,689.86.

Given the usual lag of a few months between currency moves and earnings revisions, European stocks could see profit upgrades in the coming months if the Italian political crisis doesn't completely derail the euro-area's economic recovery. The Italian and Spanish stock markets suffered the worst, with stock market drops in the 2.5 percent range.

"What the markets are starting to factor-in is not a default per se but an early election leading to a victory of eurosceptics and an exit from the euro".

The Dow in the USA, which slid 505 points at its low, ended the day down 392 points, or 1.6%, at 24,361.45 as Wall Street reacted to the prospect of new elections in the eurozone's third-largest economy. Coca-Cola was the only bright spot in the Dow, squeaking just above the flat line.

The yield on the benchmark 10-year Treasury note was lower at around 2.826 percent, while the yield on the 30-year Treasury bond ticked down to 2.991 percent.

Repos are a safer form of credit because the lender gets to keep the collateral - in Europe, typically a high-rated government bond such as Germany's - if the borrower can't pay back. -North Korean summit and the U.S. The worst performers were financials, industrials, materials, health care and consumer staples. Italy's economy is Europe's third-largest and could be much harder for its fellow euro zone members to tame than was the Greek crisis. On Friday, ratings agency Moody's had threatened to downgrade Italy's debt rating, citing a risk that the new government might fail to reduce its public debt.

Italy's populist 5-Star Movement and the anti-immigration League have criticized European Union restrictions on annual government borrowing and on the overall size of a country's debt pile. That helped send the euro down against the dollar.

Markets were uneasy across the board with the Chicago Board Options Exchange Volatility Index, popularly known as the VIX, jumping.

One big reason for the worry: the firewalls the eurozone built to prevent a rerun of its 2010-2012 debt crisis largely depend on countries being willing to go along with the currency bloc's financial rules. A euroskeptic is a person who is opposed to increasing the powers of the European Union.

"People are now realizing the only economy with real legs to it was the USA economy", El-Erian said on the show.

European markets fell sharply Tuesday, especially in Italy, Greece and Spain, and USA stocks also sustained losses. Political risks in Italy drove the Euro to a multi-month low against the U.S. Dollar.

Investors, of course, are familiar with market storm clouds forming over Europe. "Some caution is warranted".



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