Italy and Spain : Send European Stocks Into Retreat

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05/29/2018 | 09:43 am

By Riva Gold

European stocks extended losses Tuesday as political worries around Italy and Spain continued to grip the region's markets.

The Stoxx Europe 600 fell 0.8% in early trading, led lower by 2.1% and 1.5% declines in the FTSE MIB and IBEX 35 Index respectively.

The moves echoed declines in light trading on Monday when U.K. market participants were out for a holiday.

Italian President Sergio Mattarella decided on Sunday to block the formation of a euroskeptic government, reviving longstanding worries about the broader stability of the eurozone and a political crisis in a country with EUR2.3 trillion in debt.

"Having priced out the threat of fragmentation on the back of the [European Central Bank's quantitative easing program], recent events in Italy suggest the market has now very much begun to price such concerns back in," strategists at Rabobank wrote in a note.

Spain's parliament meanwhile is set to vote on Friday whether to oust Prime Minister Mariano Rajoy and replace his center-right government with one led by the center-left Socialist Party after a Spanish court ruled that Mr. Rajoy's Popular Party financially benefited from an illegal kickback scheme.

The euro was last down 0.3% at $1.1590 from its lowest afternoon level against the dollar since November on Monday.

Italian government bond yields continued to climb Tuesday, rising to 2.865% from around 2.673% late Monday, widening the yield gap over Germany to around 2.5 percentage points. Yields move inversely to prices.

Yields on 10-year Treasurys edged down to 2.872% from 2.931% at the end of last week.

Declines in benchmark U.S. and German bond yields combined with continued uncertainty about regional politics put pressure on European bank shares, with the Stoxx Europe 600 banks sector down 1.5% on Tuesday.

Elsewhere, Asia-Pacific stock markets were mostly lower, with Japan's Nikkei down 0.6% as the yen strengthened against the dollar. The yen was last up 0.5% against the dollar, which tends to put pressure on multinationals translating revenues from abroad.

Hong Kong's Hang Seng fell 0.8% and South Korea's Kospi fell 0.9%.

Brent crude oil was last up 0.4% at $75.59 a barrel after falling for three straight sessions.

Write to Riva Gold at

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