Published: Sat, June 02, 2018
Money | By Bruce West

Markets Right Now: Italy gridlock shakes up global markets

Markets Right Now: Italy gridlock shakes up global markets

A deepening political and constitutional crisis in Italy, the euro zone's third biggest economy, fueled a sharp rise in the country's short-term borrowing costs on Tuesday and renewed selling in the euro and stocks. The Russell 2000 index of smaller-company stocks slid 2 points, or 0.1 percent, to 1,624.

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. The parties will likely keep negotiating, and contentious talks between the US and China are due to resume during the weekend. Australia's S&P ASX 200 fell 0.6 percent to 5,979.00.

For a country to be eligible for OMT, it must be in a European Financial Stability Facility/European Stability Mechanism adjustment or precautionary program and support must be warranted from a monetary policy perspective.

"At these levels, I think the dollar is almost priced to perfection and we think the euro should see a rebound from later this year", said Paul Baird, head of fixed income at Newton Asset Management, a subsidiary of BNY Mellon which manages $49.8 billion in assets globally.

USA employers extended a streak of solid hiring in May, adding 223,000 jobs and pushing the unemployment to an 18-year low of 3.8 percent. 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.

The dollar rose against most major currencies except the Canadian Dollar.

Peer AMS declined before recovering losses to end down 0.6 percent. Earlier it fell to $1.1510, its lowest level since last July before recovering to trade 0.5 percent down on the day at $1.1565.

They yielded over 6 percent in mid-2012, when ECB President Mario Draghi, a former Italian central bank chief, promised to do "whatever it takes" to preserve the euro. Most Southeast Asian markets were closed for holidays. In Beijing, South Korea's Yonhap news agency reported that senior North Korean official Kim Yong Chol planned to head to the United States. The yield on the 10-year Treasury fell to 2.78 percent, its lowest since early April, from 2.93 percent.

Elsewhere Spanish equities rose 1.8 percent after Spanish socialist Pedro Sanchez was catapulted to power, taking over as prime minister from veteran conservative Mariano Rajoy, who lost a no-confidence vote in the wake of a corruption scandal. By mid-afternoon Asia time it was at 2.81 percent. Italian assets sank across the board Tuesday, with the risk premium on 10-year bonds over German benchmarks rising to the biggest in nearly five years.

ENERGY: Benchmark U.S. crude fell 57 cents to $67.31 per barrel in electronic trading on the New York Mercantile Exchange while Brent crude, used to price global oils, added 78 cents to $76.08 per barrel in London. Hong Kong's Hang Seng index clawed back losses to gain 0.1 percent, ending at 30,492.91. Brent crude, used to price worldwide oils, dropped 40 cents to $77.16 per barrel.

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