Italy angst bites, stocks about turn

  • 03/10/2018
Italy angst bites, stocks about turn
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Stocks have fallen worldwide and European assets have been sold off after anti-euro comments from an Italian MP dented the single currency and sent Italy's bond yields to multi-year highs.

A boost to investors' risk appetite from the new US-Mexico-Canada trade pact proved short-lived with the MSCI world equity index falling back 0.4 percent on Tuesday, its biggest loss in a month.

The leading index of euro zone stocks lost 1 percent and the pan-European STOXX 600 fell 0.7 percent, tracking Asian stocks lower and extending losses as Italian assets came under renewed stress.

US futures also traded down 0.3 percent to 0.4 percent.

Claudio Borghi, the economics spokesman of Italy's ruling League party, said in a radio interview that most of the country's problems could be solved by having its own currency.

His comments drove Italian 10-year bond yields to a new 4-and-a-half-year high, pushing the spread between Italian and German yields to the widest for more than five years.

Shares in Italian banks, which have large sovereign bond holdings, hit a 19-month low, falling as much as 2.8 per cent and Italy's FTSE MIB tumbled 1.2 percent.

Clarifying his remarks later, Borghi said Italy's government has no intention of leaving the euro. However the spectre of a euro zone break-up and stern words from EU officials about Italy's budget kept markets on edge.

Euro zone banks also dropped 1 percent as the comments reignited investors' anxieties about contagion in the euro zone from Italy's higher-than-expected budget deficit plans.

"While our economists do not expect systemic implications for the global economy, contagion risks have risen," Goldman Sachs analysts said.

"We think European risky assets remain vulnerable and there is potential for negative spillovers to the Euro area given the high trade exposure to Italy."

The euro extended losses to fall 0.6 per cent to its lowest since August 21 at $1.1504 and was last trading at $1.1509.

The single currency has been hurt by concerns a significant increase in the Italian budget will deepen Italy's debt and deficit problems and by extension the European Union's.

Asian stocks were lower as the lift from an agreement that saved the North American free-trade deal faded.

China's financial markets are closed for the week of October 1-5 for national holidays but data showing weaker factory growth in China also hit Hong Kong stocks.

The US and Canada forged a last-minute deal on Sunday to salvage NAFTA as a trilateral pact with Mexico, rescuing a $US1.2 trillion (NZ$1.82 trillion) open-trade zone that had been about to collapse after nearly a quarter century in operation.

The trade pact helped the dollar index rise 0.4 percent to 95.718, its highest since September 4.

The dollar's strength weighed on the leading emerging markets stock index, which fell 1.5 percent - its biggest one-day loss for a month.

Oil prices recoiled slightly, having hit nearly four-year highs in the previous session.

Crude contracts had surged nearly 3 percent to $75.77 a barrel, their highest since November 2014, as the deal to salvage NAFTA stoked economic growth expectations, with impending US sanctions on Iran seen raising prices.

US crude futures, having touched a high of $75.91, were trading flat at $75.30 a barrel.

Brent crude edged down 0.5 percent to $84.52 a barrel, having rallied the previous day to $85.45, its highest since November 2014.