Risk Appetite Fades on Italy Outlook; Oil Slumps: Markets Wrap

(Bloomberg) -- Politics dominated markets on Monday, with risk appetite withering in Europe as Italy lurched toward fresh elections. The region’s shares and currency reversed early gains, while U.S. equity futures pared a jump even as the America-North Korea summit appeared to be back on track.

Most national gauges in Europe turned lower led by Italy’s benchmark, which plunged as populist leaders pulled the plug on their attempt to form a government and the country headed for new elections as early as the fall. The nation’s bonds also tumbled. S&P 500 futures, which jumped earlier alongside South Korean stocks, were fractionally stronger in muted trading -- it’s a holiday in both the U.S. and U.K. Oil losses deepened after Saudi Arabia and Russia said they are discussing reviving output.

It had looked like a positive start to the week for global equities following a tumultuous few days, but investor concerns were never far away. U.S. negotiations with North Korea have proved unpredictable, and while the failure of populist leaders to form a government in Italy removes a threat to the euro area for now, it raises the prospect they will cement their power in a follow-up ballot.

“We may now be in for an extended period of heightened uncertainty ahead of fresh elections,” said Ray Attrill, head of foreign-exchange strategy at National Australia Bank Ltd. in Sydney.

Elsewhere, emerging-market stocks struggled to hold a gain as the dollar rose, while developing currencies erased an advance. The lira was the stand out performer, rallying after the central bank took steps to simplify its monetary policy. Gold fell.

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: China’s stock market joins 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 dipped 0.3 percent.
• Futures on the S&P 500 Index gained 0.2 percent as of 3:31 p.m. New York time.
• The MSCI Asia Pacific Index advanced 0.1 percent, the largest gain in more than a week.
• Germany’s DAX Index sank 0.6 percent.
• The MSCI Emerging Market Index steady

Currencies

• The Bloomberg Dollar Spot Index climbed 0.1 percent to the highest in more than five months.
• The euro dipped 0.2 percent to $1.163, the weakest in almost seven months.
• The British pound gained less than 0.05 percent to $1.3311.
• The Japanese yen advanced less than 0.05 percent to 109.38 per dollar.
• The Turkish lira climbed 2.7 percent to 4.5875 per dollar, the biggest increase in more than two years.
• The Brazilian real weakened 2.3 percent to 3.73 per dollar, the most among major currencies.

Bonds

• Germany’s 10-year yield declined six basis points to 0.34 percent, the lowest in more than five months.
• Italy’s 10-year yield increased 22 basis points to 2.684 percent, the highest in almost four years on the largest climb in more than two years.

Commodities

• Gold declined 0.3 percent to $1,299.04 an ounce, the largest drop in almost two weeks.
• Brent crude fell 1.4 percent to $75.30 a barrel.

--With assistance from Ruth Carson, Andreea Papuc and Justin Villamil.

To contact the reporter on this story: Samuel Potter in London at spotter33@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Christiana Sciaudone

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