Saturday 17 November 2018

Italian coalition talks roil investor sentiment

Market Report

Investors were digesting Tuesday's surge in US bond yields on the heels of a retail sales report that fueled the dollar and hurt stocks (stock picture)
Investors were digesting Tuesday's surge in US bond yields on the heels of a retail sales report that fueled the dollar and hurt stocks (stock picture)

Italy's borrowing costs jumped on Wednesday and the country's stocks slid after reports that the two parties seeking to form Italy's next government might seek debt forgiveness, while the US dollar rallied further to a five-month high.

Investors were digesting Tuesday's surge in US bond yields on the heels of a retail sales report that fueled the dollar and hurt stocks.

The benchmark 10-year yield held well above 3pc after bursting through key technical levels on Tuesday.

"The combination of higher oil prices, higher dollar and stronger yields are starting to potentially weigh on investor sentiment," said Katie Nixon, chief investment officer for wealth management division of Northern Trust in Chicago.

"As yields go up they start to be a little bit more competitive with risk assets and with stocks in particular."

Wall Street's main indexes were little changed after sliding on Tuesday.

Shares of US retailers rose after results from department store chain Macy's.

In Italy, investors seized on a report that the anti-establishment 5-Star Movement and the far-right League party plan to ask the European Central Bank to forgive €250bn of Italian debt, according to a draft the parties are working on.

Italian stocks tumbled 2.3pc while Italy's 10-year bond yield jumped to 2.096pc.

"It's right to resonate with markets because it tells you about the sense of the wisdom between these negotiating parties," said Chris Scicluna, head of economic research at Daiwa Capital Markets.

Other major European stock markets were higher, and the pan-European FTSEurofirst 300 index rose 0.22pc.

MSCI's gauge of stocks across the globe gained 0.03 percent.

North Korea threw next month's summit between Kim Jong Un and US President Donald Trump into doubt, by saying it may reconsider if Washington insists it unilaterally gives up its nuclear weapons.

"Investors have gotten sort of used to this. Whether we are talking about North Korea or the trade discussions with China... I think investors are recognizing we are at the beginning of the beginning of this, so it's not anything to make dramatic portfolio moves or any significant bets on," Nixon said.

Reuters

Reuters

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