Eurozone equities were held down yesterday as investors tracked a brewing political fight between Brussels and Rome, and continued to digest the outcome of elections for the European Parliament, dealers said. Milan, Frankfurt and Paris all retreated as Italian debt concerns returned to the fore. London, where investors returned from a long weekend, did a little better as a weak pound helped stocks stem losses. Milan’s FTSE MIB lost 0.5% to 20,260.98 points, London’s FTSE 100 was down 0.1% at 7,268.95, Frankfurt’s DAX 30 shed 0.4% to 12,027.05 and Paris’s CAC 40 was down 0.4% to 5,312.69 points at close yesterday. “Italy is once again becoming a problem for the eurozone,” said analyst Konstantinos Anthis at trading firm ADSS. However losses were limited after a much-feared surge in populist groups was largely contained in European Parliament elections. Although voters shifted allegiances in the EU elections, mainstream parties managed to retain control. “European stock markets are in the red as Italian government bond yields have ticked up over fear of a political fight between Rome and Brussels,” said analyst David Madden at CMC Markets UK. “The EU has warned the Italian government they could be fined…for failing to curb their debt levels, and Italy’s joint deputy prime minister Matteo Salvini declared he will use all his energies to fight the EU’s rules.” Salvini said yesterday he expected Brussels to slap Rome with a €3bn ($3.4bn) fine over the country’s rising debt and structural deficit levels. “At a time when youth unemployment touches 50% in some regions… someone in Brussels is demanding, under the old rules, a fine of €3bn,” he told RTL 102.5 radio. “All my energy will go into changing these rules from the past,” said Salvini, who has been emboldened after his far-right League party topped Sunday’s European Parliament elections in Italy. The European Commission is expected to start disciplinary steps against Italy on June 5 by opening an excessive deficit procedure which could hand Italy a fine of up to 0.2% of the nation’s GDP. Italy’s public debt is seen as a big problem, sitting at 132% of the country’s GDP in 2018 – way above the 60% EU ceiling. The British pound continued to languish near recent lows after the anti-EU Brexit party soared in the European polls in the UK. Sterling languished just off four-month lows yesterday, with the outcome of last week’s European election seen possibly emboldening proponents of a no-deal Brexit as the battle to succeed Prime Minister Theresa May got underway. With the Brexit Party handing the ruling Conservatives a drubbing in last week’s European elections, many of the candidates vying for May’s job are under pressure to deliver a more decisive break with the EU when Britain is scheduled to leave the bloc on October 31. May said last week she would step down on June 7. While foreign minister Jeremy Hunt said no-deal Brexit would amount to “political suicide”, other candidates, including front-runner Boris Johnson, have signalled they are prepared for that if Brussels does not reopen negotiations over May’s unpopular withdrawal agreement. However, sterling’s downside was limited by the fact that parties opposing Brexit also made sharp gains in the European vote. “For the Brexit Party to get so many votes is a sign to politicians that people are not as afraid of the no-deal scenario as most members of parliament. So the no-deal risk has increased a bit,” said Morten Lund, FX strategist at Nordea. The British currency slipped 0.01% to $1.2678, having traded as low as $1.2605 last week. It was likewise flat versus the euro at 88.195 pence to stand just off four-month lows. Lund said however no-deal Brexit probabilities remain around 15%-20%, because lawmakers could call a no-confidence vote against any prime minister who chooses that route, potentially triggering snap elections. That has put intense pressure on the ruling Conservatives who suffered a historic rout – and raised the chances of a no-deal departure from the EU at the end of October. British Prime Minister Theresa May’s Conservatives finished in fifth place with 2% – their worst performance since 1832. Qnd the main opposition Labour Party was also punished for not clearly spelling out its Brexit stance. David Cheetham, analyst at broker XTB, said the outcome was “providing a headwind to any recovery for the pound”. In Asia, markets mostly rose yesterday as US President Donald Trump took a softer approach in Washington’s trade dispute with Japan as he wrapped up his visit to the Asian ally. Trump’s visit came as a trade row between the US and China rumbles on, with no date set for tariff negotiations to resume. Briefing.com analyst Patrick O’Hare said “in terms of the US-China trade issue, it continues to be a cry of stalemate as opposed to checkmate” which is probably why the markets weren’t too worked up. “The ‘new’ news sounds like the ‘old’ news of prior weeks, which has already been weighing on the market,” he said. US stocks were a touch higher in the late New York morning after trading resumed following a three-day holiday weekend.
Source – Gulf of Times.
