Political turmoil saps appetite for risk

POLITICS dominated markets yesterday, with risk appetite withering in Europe as Italy lurched toward fresh elections.

Stocks and currencies reversed early gains, while US 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 autumn.

The nation’s bonds also tumbled. S&P 500 futures, which jumped earlier alongside South Korean stocks, were fractionally stronger in muted trading – yesterday was a holiday in both the US and the UK. Elsewhere, gold fell and a decline in oil deepened after Saudi Arabia and Russia said they were discussing reviving output. In Dublin, the ISEQ index of Irish shares was little changed.

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. US 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 info ran extended period of heightened uncertainty ahead of fresh elections,” said Ray Attrill, head of foreign-exchange strategy at National Australia Bank.

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 monetary policy. (Bloomberg)