No need to intervene in Italy crisis — European Central Bank sources

Mae Love
June 2, 2018

Asian stocks rebounded after USA shares rallied with Treasury yields, as investors saw the market reaction to Italy's political turmoil as overdone.

European Union lawmakers from the two parties forming Italy's new government coalition backed this week a rejected proposal to set up EU funds to help countries quit the euro, a sign of the Italian leadership's ambivalent position on the common currency.

As prospects of a trade war with the USA loom and euro-risk returns, Eurozone inflation jumps to 1.9%. The euro fell to $1.1681 from $1.1695.

Stocks in Milan slid 2.6 per cent on the main index after a 2.1 per cent fall on Monday.

The prospect of a full-blown collapse of the euro area may be minuscule, but one unnamed bond investor isn't taking any chances.

"It is just a slide and as the slide continues, you ask where is the end", said Saxo Bank's head of FX strategy John Hardy. USA markets were closed Monday for a holiday.

The Spike in Europe's inflation figures could revive expectations of an eventual rate hike by the European Central Bank if market concerns about politics in Southern Europe diminish further. "I see a lot of uncertainty, which results in a lot of volatility". "A "whatever it takes" kind of moment", he said.

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In Spain, that country's parliament will hold a vote of no confidence in Prime Minister Mariano Rajoy after graft convictions of businesspeople and officials tied to his conservative Popular Party.

But US Treasury yields have tumbled as traders flock to assets considered safe - yields go down the more the bonds are in demand - while the yen, a go-to unit in times of turmoil, rallied.

The kiwi fell to 91.90 Australian cents from 92 cents and traded at 4.4259 yuan from 4.4452 yuan.

ASIA'S DAY: Japan's Nikkei 225 fell 0.6 percent while South Korea's Kospi lost 0.9 percent. Taipei, Manila and Jakarta were all sharply down. Meanwhile, the dollar was up against nearly all major currencies except the safe-haven Japanese yen. "This should keep the risk trades pressured to the downside", Nick Twidale, Sydney-based analyst at Rakuten Securities Australia.

"Worries over geopolitics look set to hit Asia after sweeping through Europe and also the U.S. at the start of the week".

The New Zealand dollar fell below 69 United States cents and dropped against the yen as Italy's political hiatus sent Italian bond yields soaring and prompted investors to look for safe havens. Yields move inversely to price. Italy's rate reached 1.1% compared to 0.6% in April.

Asian markets were mostly lower, with traders keeping an eye on oil prices, which have tanked since Saudi Arabia and Russian Federation indicated they could lift output, having abided by a self-imposed cap for two years. The recovery was short-lived and it was moving toward daily lows. The New Zealand dollar slipped 0.2 percent to $0.6929.

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