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ASIA-MARKETS-UPDATE
Asian markets and euro hit by Italy turmoil
HONG KONG, May 30, 2018 (BSS/AFP) – Asian equities tumbled Wednesday while
the euro was stuck around 10-month lows Wednesday as turmoil in Italy sparked
a frantic dash for safety, while investors have also been spooked by fresh
worries about the China-US trade row.
Global markets have been sent into a tailspin as a political crisis
unfolding in Rome has thrust the stability of the eurozone and European Union
back on to the agenda.
“As the third biggest economy in the EU, as a heavily indebted one, and
with Eurosceptics seemingly in the ascendancy markets have worried that the
EU again faces an existential crisis,” Greg McKenna, chief market strategist
at AxiTrader, said.
However, he added; “I’ll go out on a limb and suggest there are a bunch of
experienced political operatives in Europe and some neophytes in Italy who
might just have got the shock of their lives on how quickly this situation
developed and we’ll see some backpedalling.”
Italy was plunged into crisis when President Sergio Mattarella at the
weekend vetoed the nomination of a fierce eurosceptic as economy minister,
leading the prime minister-designate to step down and upending a bid by the
anti-establishment Five Star Movement and the far-right League to form a
government.
Mattarella then named Carlo Cottarelli, a pro-austerity economist formerly
with the International Monetary Fund, to lead a technocrat government, with
another election likely in a few months.
The chaotic developments have spooked investors, who fear another election
will essentially be seen as a referendum on the country’s future in the
eurozone.
Adding to the selling pressure was a brewing crisis in Spain, where Prime
Minister Mariano Rajoy faces a no-confidence vote after his party was found
guilty of benefiting from illegal funds in a massive graft trial.
The euro dived against the dollar and yen Tuesday to lows not seen since
mid-2017 and it extended the losses in Asian trade.
– Fresh trade woes –
Regional investors tracked big losses Tuesday in Milan, Madrid and other
European and US markets.
Tokyo ended 1.5 percent down, Hong Kong lost 1.6 percent and Shanghai was
2.5 percent lower. Sydney gave up 0.5 percent, Singapore dived 1.9 percent
and Seoul was two percent lower. Taipei, Kuala Lumpur and Manila were also
sharply down.
But in early European trade on Wednesday Milan rebounded more than one
percent, while London was flat. Paris fell 0.4 percent while Frankfurt added
0.1 percent.
The turmoil has also sent the yield spread between Italy and Germany’s 10-
year bonds to around a five-year high, reflecting investor concerns.
But US Treasury yields have tumbled as traders flock to assets considered
safe — yields go down the more the bonds are in demand — while the yen, a
go-to unit in times of turmoil, rallied.
High-yielding, riskier, currencies from the Korean won to the Indonesian
rupiah tumbled.
Investors have also been spooked by Donald Trump’s decision Tuesday to
press ahead with imposing tariffs on Chinese goods despite ongoing talks to
resolve the dispute.
The White House said the sanctions announced in March, largely focused on
intellectual property, were still in the works and details would be announced
in the coming month.
China said the move breached a consensus reached between Washington and
Beijing earlier this month that called off a threatened trade war.
Oil prices were also down again as investors fret over Saudi Arabia and
Russia’s indication that they will lift an output cap that has helped support
the crude market for the past two years.
– Key figures around 0720 GMT –
Milan – FTSE MIB: UP 1.1 percent at 21,582.95
Euro/dollar: UP at $1.1564 from $1.1537 at 2100 GMT
Euro/yen: UP at 125.70 yen from 125.45 yen
Tokyo – Nikkei 225: DOWN 1.5 percent at 22,018.52 (close)
Hong Kong – Hang Seng: DOWN 1.6 percent at 30,013.30
Shanghai – Composite: DOWN 2.5 percent at 3,041.44 (close)
London – FTSE 100: FLAT at 7,632.60
Pound/dollar: UP at $1.3265 from $1.3258
Dollar/yen: DOWN at 108.60 yen from 108.68 yen
Oil – West Texas Intermediate: DOWN two cents at $66.71 per barrel
Oil – Brent Crude: DOWN 12 cents at $75.27 per barrel
New York – DOW: DOWN 1.6 percent at 24,361.45 (close)
BSS/AFP/HR/1410