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Fresh effort to form Italy government, German data boost mood
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Europe stocks stabilize, U.S. futures advance; dollar slips
Global markets regained some composure on Wednesday as fresh efforts to form a government in Italy and encouraging economic data helped steady nerves in Europe. Treasuries fell back with the dollar as the haven bid subsided, the euro jumped and European stocks stabilized.
Italian bonds rebounded, with the 10-year yield falling as much as 19 basis points amid reports the country’s populists are making a new attempt to form a coalition. In Germany, jobs data topped estimates and there were CPI beats in several states, all of which added momentum to a bounce in the euro.
As panic eased, U.S. 10-year bonds gave up some of Tuesday’s gains to send yields back above 2.8 percent. The Stoxx Europe 600 Index fluctuated while S&P 500 futures pointed to a stronger open. Financial shares led the MSCI Asia Pacific Index down as the region’s stocks played catch up to the previous day’s selloff. The pound advanced.
Traders are catching their breath after an unprecedented Italian bond slump on Tuesday spilled over into global risk assets. While the prospect of snap Italian elections — which could effectively become a referendum on the euro — continues to loom, some investors see the selloff as overdone while the timing of any vote remains unclear.
“Ultimately we think Italy stays in the club,” said Gordon Brown, London-based co-head of global portfolios at Western Asset Management Co., which had made short bets on the debt of the euro region’s No. 3 economy last week but is now closing out positions. “Yields will settle down at a more reasonable level, but one that reflects ongoing political risk premium.”
Here’s a roundup of Italian political turmoil and Tuesday’s market rout.
Investors are also keeping an eye on the White House, with the Trump administration plowing ahead with plans for tariffs on Chinese goods and giving conflicting signals on talks with North Korea.
Elsewhere, oil stabilized after a string of declines in the wake of major producers’ plans to step up output. Saudi Arabia, Kuwait and the U.A.E. plan to meet in Kuwait City on Saturday to discuss supply.
Terminal users can read more in Bloomberg’s Markets Live blog.
These are some key events to watch this week:
- EU trade chief Cecilia Malmstrom and U.S. Commerce Secretary Wilbur Ross are scheduled to meet Wednesday in an informal World Trade Organization ministerial in Paris.
- The U.S. employment report for May is due Friday. It’s the last before the June Fed meeting.
- Automakers report May U.S. sales the same day.
- Also Friday: some onshore Chinese stocks join MSCI Inc.’s global indexes.
- On Saturday U.S. Secretary of Commerce Wilbur Ross will travel to Beijing for more talks with Vice Premier Liu He on topics including ZTE Corp. and trade.
These are the main moves in markets:
Stocks
- The Stoxx Europe 600 Index increased less than 0.05 percent as of 9:25 a.m. London time.
- Futures on the S&P 500 Index gained 0.3 percent, the first advance in a week and the biggest rise in more than a week.
- The U.K.’s FTSE 100 Index gained 0.1 percent.
- Germany’s DAX Index climbed 0.4 percent.
- The MSCI Emerging Market Index decreased 1.2 percent to the lowest in almost six months on the largest dip in more than two weeks.
- The MSCI Asia Pacific Index sank 1.3 percent to the lowest in almost 16 weeks on the biggest tumble in two months.
Currencies
- The Bloomberg Dollar Spot Index sank 0.3 percent, the largest decrease in almost three weeks.
- The euro climbed 0.4 percent to $1.1591, the biggest increase in almost three weeks.
- The British pound gained 0.2 percent to $1.327.
- The Japanese yen increased 0.1 percent to 108.67 per dollar, the strongest in almost six weeks.
- The Turkish lira jumped 1.1 percent to 4.4989 per dollar, the strongest in more than a week.
Bonds
- The yield on 10-year Treasuries increased six basis points to 2.84 percent, the biggest increase in more than two weeks.
- Germany’s 10-year yield climbed six basis points to 0.32 percent, the first advance in more than a week and the largest surge in almost six weeks.
- Britain’s 10-year yield gained four basis points to 1.197 percent, the biggest gain in more than a week.
- Italy’s 10-year yield sank 14 basis points to 3.026 percent, the largest tumble in 18 months.
Commodities
- West Texas Intermediate crude gained 0.1 percent to $66.78 a barrel, the first advance in more than a week.
- Gold dipped less than 0.05 percent to $1,298.65 an ounce.
- Brent crude fell 0.1 percent to $75.32 a barrel.
By Samuel Potter – May 30, 2018, 6:34 PM GMT+10
— With assistance by Andreea Papuc
Source: Bloomberg