Global financial worries throw wrench into US stock markets

02 June, 2018, 16:23 | Author: Kevin Carter
  • Markets Right Now: Italy's political gridlock upsets markets

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.

Investors are anxious that Italy could become another Greece, which required bailouts by the International Monetary Fund and European Central Bank between 2010 and 2015. A capitalisation-weighted index of euro area banks fell as much as 5.2% to its lowest since December 2016, while Deutsche Bank AG dropped by 3.3% to the lowest since September 2016.

"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.

The yield on the benchmark 10-year Treasury note broke below 2.8 percent on Tuesday, down from highs above 3.13 percent earlier this month. The sharp move higher reflects weakening confidence among investors in Italy's government. Efforts to form a government collapsed Sunday after President Sergio Mattarella rejected a nominee for economy minister, Paolo Savona, who in the past had entertained a "Plan B" to leave the euro.

The German DAX lost 1.5 percent and Britain's FTSE 100 and the French CAC 40 both sank 1.3 percent.

In the US markets, financial services were hit the hardest with JPMorgan Chase down 4.2 percent, followed by Goldman Sachs down 3.4 percent and American Express down 3.3 percent in late-day trading.

Spain was facing political turbulence of its own.

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"Uncertainty and the unknowns themselves affect the real economy", said Levine, of Bank of New York Mellon. 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. The yield on the 30-year Treasury bond, meanwhile, was down at 3.006 percent.

Prices excluding energy, food and alcohol (Core CPI) this month rose 1.1 percent year-on-year after growing 0.7% in April.

A trader at a European bank said the decline was also triggered by tecnhnical factors and a 4.5 percent slump in Fiat Chrysler shares.

Oil struggled under pressure from expectations that Saudi Arabia and Russian Federation would pump more oil to counter potential supply shortfalls from Venezuela and Iran, even as USA output has surged in recent years. Brent crude, used to price worldwide oils, shed 38 cents to $75.11 a barrel in London.

Wholesale gasoline gave up 1.7 percent to $2.14 a gallon. The Nasdaq composite fell 37 points, or 0.5 percent, to 7,398. However, Sydney added 0.3 percent.

On Wednesday Japan's Nikkei 225 stock index dropped 1.5%, South Korea's Kospi dropped 1.8% and the Hang Seng in Hong Kong slipped 1.2%. General Electioc took the worst losses among industrial firms as it sank 2 percent to $14.35, while Delta Air Lines lost 1.9 percent to $54.82.

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