Downbeat mood for markets amid Italy worries and euro decline

On Tuesday, the euro dropped a fifth day, European stocks and US futures followed Asian declines, while Treasuries and bonds advanced. AFP

A downbeat mood settled over markets on Tuesday, as fears surrounding the populist Italian government’s fiscal plans topped a list of reasons for caution. The euro dropped a fifth day, European stocks and US futures followed Asian declines, while Treasuries and bonds advanced.

The common currency fell to the weakest in three weeks after the head of Italy’s lower house budget committee said the nation would have solved its fiscal problems with its own currency, and the leader of the European Commission warned of a Greek-style crisis. Italian bonds extended a recent slump, while the region’s safer “core bonds” climbed. The Stoxx Europe 600 Index fell for only the second time in six days as equities in Italy declined. Amid the risk-off mood the dollar climbed against almost all its major peers and emerging-market assets dropped. The pound fell as Brexit and the annual conference of the governing Conservative Party continued to dominate headlines.

Earlier in Asia stocks in Hong Kong underperformed as traders returned from a long weekend, and equities also fell in Australia and South Korea. Japan was a bright spot as the Nikkei 225 Stock Average ticked up a day after closing at its highest since 1991.

While a deal between the US and Canada to revamp the Nafta trade deal with Mexico gave global risk appetite a boost at the start of the week, investor sentiment remains fragile amid a laundry list of threats to markets. Sino-American tensions are back in focus after the Chinese navy dispelled a US missile destroyer from waters near South China Sea islands, in Beijing’s account of the incident. Meanwhile, political drama in Washington still swirls around President Donald Trump’s Supreme Court nominee, which may feed through to November congressional elections and affect the outlook for the administration’s agenda.

Elsewhere, oil consolidated around its highest in almost four years as a slowdown in US drilling adds to concern over supply losses from Iran and Venezuela. Indonesia’s rupiah fell past 15,000 per dollar for the first time since 1998 a day after inflation came in slower than forecast.

These are the main moves in markets: The Stoxx Europe 600 Index dipped 0.6 per cent as of 9.29am London time, the lowest in almost two weeks. Futures on the S&P 500 Index fell 0.2 per cent. The UK’s FTSE 100 Index decreased 0.4 per cent. Germany’s DAX Index sank 0.8 per cent to the lowest in almost two weeks. The MSCI Emerging Market Index fell 1.4 per cent to the lowest in almost two weeks. The MSCI Asia Pacific Index fell 0.7 per cent to the lowest in two weeks.

In currencies, the Bloomberg Dollar Spot Index climbed 0.3 per cent to the highest in more than three weeks. The euro declined 0.4 per cent to $1.1528, reaching the weakest in six weeks on its fifth straight decline. The British pound dipped 0.4 per cent to $1.2987, the weakest in more than three weeks. The Japanese yen rose 0.2 per cent to 113.74 per dollar.

The bond yield on 10-year Treasuries decreased three basis points to 3.05 per cent. Germany’s 10-year yield dipped five basis points to 0.43 per cent, the lowest in almost three weeks. Britain’s 10-year yield declined four basis points to 1.543 per cent. Italy’s 10-year yield gained 11 basis points to 3.409 per cent, the highest in more than four years.

West Texas Intermediate crude rose 0.3 per cent to $75.55 a barrel, the highest in almost four years. Gold climbed 0.4 per cent to $1,193.85 an ounce.