Oil sinks while stocks gain on North Korea, euro shaken by Italy

Jun 02, 2018, 01:21
Oil sinks while stocks gain on North Korea, euro shaken by Italy

The Milan stock index was down almost 3 percent, weighing particularly hard on banks, and Italian bonds suffered a plunge reminiscent of the worst days of the financial crisis of 2011.

That's because a political government would avoid an early election that investors worry would be seen as a referendum on the euro.

Investors dumped Italian government bonds, driving borrowing costs sharply higher for that country and rekindling fears of more financial strain for Europe's third-largest economy.

Salvini and Di Maio had agreed when they first tried to form a government that Giuseppe Conte, a little-known law professor, would be prime minister. Hong Kong's Hang Seng index clawed back losses to gain 0.1 percent, ending at 30,492.91.

The rise of a potentially euroskeptic government in Italy and the impact that could have on the stability of Europe had driven the euro to 10-month lows against the dollar on Tuesday.

The right-wing La Lega party is enjoying strong momentum and attempting to position the new elections around the issue of Italy's independence, with the spectre of "Italexit" continuing to haunt markets in the meantime, said Mr Lee, referencing a term popularised by nations wanting to exit the EU.

Elsewhere shares in Deutsche Bank (DBKGn.DE) recovered some of the previous session's heavy losses, climbing 2.8 percent higher following Thursday's drop of more than 7 percent in the after a report that the U.S. Federal Reserve a year ago designated the bank's U.S. operations to be in "troubled condition".

Eurostat said Thursday the jobless rate in the single currency area fell to 8.5 percent in April, a nine-year low and down from 8.6 percent a month before. There are worrying signs that the eurozone economy is going through a weak spell, the region is on the brink of a trade war with the United States, and Italy and Spain are engulfed in political uncertainty.

The Treasury official also said that G7 countries are likely to ask Mnuchin about pending US steel and aluminium tariffs that could become effective as early as Friday as exemptions for Canada and the European Union expire.

The Shanghai Composite Index fell 0.5 percent and the blue-chip CSI300 index dropped 0.75 percent.

"Although we remain structurally positive on the currency, it has become hard to envision significant appreciation over the near term", Goldman analysts said in a note. Australia's S&P/ASX 200 added 0.2 percent to 6,014.80.

The euro was set to snap a six-week losing streak, supported by falling bond yields. Benchmark U.S. crude tumbled $1.99 a barrel to $65.92 a barrel in electronic trading on the New York Mercantile Exchange.

"Italy has gone back to being seen as a problem, but maybe a contained problem, less of a global risk than it was on Monday and that's weighing on the Dollars", said Daniel Katzive, head of FX strategy North America at BNP Paribas in NY. The dollar remained steady against the yen JPY=.

Brent crude manage to rebound on Tuesday, while WTI slumped once more.