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Stock markets gloomy on Italian crisis

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Aug 20, 2019: European stock markets turned lower on Tuesday as political crisis in Italy weighed on sentiment, while a recovery in US stocks was cut short after two days of gains.

European markets had started higher, lifted by hopes for central bank and government stimulus measures, and for easing tensions in the China-US trade war.

Trading floors have been on edge for weeks owing to a number of concerns including the trade war, Brexit, a global economic slowdown and tensions in the Middle East.

Equities still got a positive start to the week, with Germany reportedly planning government support to avert a recession in Europe's biggest economy and central banks elsewhere looking to ease monetary policy.

But on Tuesday investors worried mostly about Italy, where a political crisis was set to come to a head with speculation that Prime Minister Giuseppe Conte will resign after far-right Interior Minister Matteo Salvini withdrew his support from the dysfunctional coalition government.

– 'Centre of attention' –

Italy is “the centre of attention”, said Tangi Le Liboux at Paris-based brokerage Aurel BGC.

Investors mostly fear a revival of a EU-Rome spat over deficits, which could weigh on eurozone cohesion, analyst said.

US stocks reacted mostly to global bond yields coming back under pressure, suggesting markets are again focusing on the chances of a worldwide economic downturn, said analysts at Charles Schwab.

“US stocks are dipping in early action, coming off yesterday's solid gain that extended Friday's rally,” they said.

Among the key events this week is a speech by Federal Reserve boss Jerome Powell at the annual Jackson Hole symposium of central bankers in Wyoming.

– 'Blissfully' –

The Fed policy board “did not unanimously agree to the last 0.25 percent cut,” said Jeffrey Halley, senior market analyst for Asia-Pacific at OANDA.

“US economic data continues to perform blissfully, implying the economy is doing just fine,” he said.

“Against that backdrop, I struggle to see why… Powell would hit the panic button at Jackson Hole this week. The financial markets could be setting themselves up for an ugly correction into the week's end.”

The White House's decision to delay again by 90 days a ban on US firms doing business with Huawei was taken as a conciliatory move towards China and provided hope.

– 'Deaf ears' –

The announcement followed comments from Donald Trump and key advisers expressing optimism over the talks, with top-level negotiations between the economic titans lined up for next month.

The news was tempered, however, by the Commerce Department adding 46 companies to its list of Huawei subsidiaries and affiliates that would be covered by the ban if it is implemented in full, taking the total on the list to more than 100.

The “details don't necessarily suggest the US is making too many concessions on the China trade negotiations,” said Rodrigo Catril, senior forex strategist at National Australia Bank.

In foreign exchange deals, the pound fell after the EU rejected British Prime Minister Boris Johnson's demand to scrap the Irish border backstop plan to achieve a Brexit deal.

“The latest effort from Boris to persuade the EU to move their lines on the Irish border has fallen on deaf ears and given the ardent belief each party has in its respective view it's becoming increasingly hard to envisage a way out of the current impasse,” said David Cheetham at XTB.

– Key figures around 1330 GMT –

  • London – FTSE 100: DOWN 0.3 percent at 7,170.10 points
  • Frankfurt – DAX 30: DOWN 0.4 percent at 11,674.08
  • Paris – CAC 40: DOWN 0.3 percent at 5,355.30
  • EURO STOXX 50: DOWN 0.3 percent at 3,357.96
  • New York – Dow: DOWN 0.1 percent to 26,114.49
  • Tokyo – Nikkei 225: UP 0.6 percent at 20,677.22 (close)
  • Hong Kong – Hang Seng: DOWN 0.2 percent at 26,231.54 (close)
  • Shanghai – Composite: DOWN 0.1 percent at 2,880.00 (close)
  • Euro/dollar: DOWN at $1.1074 from $1.1078 at 2015 GMT
  • Pound/dollar: DOWN at $1.2094 from $1.2134
  • Euro/pound: UP at 91.57 pence from 91.30 pence
  • Dollar/yen: DOWN at 106.24 yen from 106.66 yen
  • Brent North Sea crude: UP 1 cent at $59.75 per barrel
  • West Texas Intermediate: UNCHANGED at $56.14 per barrel



Posted on: 2019-08-20T23:35:00+05:00