Italian Markets Tumble as Political Uncertainty Persists

Mae Love
May 31, 2018

This reflects the lack of market faith in Italy right now.

The political upheaval in Italy is likely to lead to new elections in the coming months, and while it's not clear if Italy would leave the euro, investors are interpreting the new vote as a referendum on Italy continuing to use the currency.

The sharp downturn followed from an equally harsh session on Wall Street on Tuesday, where the Dow Jones Industrial Average fell 1.6 percent, the S&P 500 lost 1.2 percent and the Nasdaq Composite dropped 0.5 percent. Hong Kong's Hang Seng index plunged 1 percent. Chinese shares also headed south, with the Shanghai Composite index down 1.8 percent, South Korea's KOSPI and Australia's S&P/ASX 200 slipped 2.0 percent and 0.6 percent, respectively. The yield on the 10-year Italian government bond jumped to 3.10 percent from 2.69 percent, a huge move.

Yields on high-grade euro zone bonds, which have benefited from the turmoil in Italy, were 4-6 basis points higher and bounced off some of the lowest levels in months. The dollar, meanwhile, rose 0.1 percent to 108.90 yen.

That safe-haven trend receded on Wednesday, with the euro bouncing almost one percent versus the dollar and recouping all its Tuesday losses, which had taken it down to 10-month lows. -North Korean summit and the U.S.

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ENERGY: U.S. crude oil climbed 43 cents to $67.16 per barrel in electronic trading on the New York Mercantile Exchange while Brent crude, used to price global oils, added 71 cent to $76.20 a barrel in London.

U.S. -China trade tensions also added to the sombre mood in markets. The Canadian dollar was trading at 77.66 cents United States, up from an average value of 76.92 cents USA on Tuesday.

Emerging market stocks lost 1.2 percent, marking a new low point for the year, under continued pressure from a rising US dollar for countries that often borrow in that currency. JPMorgan's corporate and investment bank chief said his bank's second-quarter markets revenue would be flat compared with a year earlier.

World stocks gained 0.38 percent, and European shares made tentative gains after falling nearly 4 percent in the past five days. Oil prices have slumped in the last week following reports that OPEC countries and Russian Federation could start pumping more oil soon.

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