Global Financial Markets Hit by Threat to EU from Italian and Spanish Political Crises

May 29, 2018

Ten-year sovereign debt yields shot up 45 and 41 basis points overnight in Greece and Italy, while also rising 12 bps in Portugal and 8 bps in Spain.

Share prices in Europe have plunged 3.2% in Italy, 2.7% in Spain, 1.8% in Greece, 1.5% in France, 1.4% in Germany and the U.K. and 1.3% in Switzerland. U.S. stock futures are down about three-fourths percent. Equities lose 1.1% in Hong Kong, 0.9% in South Korea, 0.6% in Japan and India, 0.5% in China, and 0.2% in Taiwan and New Zealand.

The dollar is benefiting from a flight to safety and has appreciated by 0.7% against the euro, 0.5% versus the peso, 0.4% relative to sterling, 0.3% vis-a-vis the loonie, Swissie, Aussie dollar and yuan. The yen has been even more well-bid than the dollar, climbing 6% against the U.S. currency.

West Texas Intermediate crude oil dropped another 1.4% overnight and has lost more than 7% in less than 6 trading days. Gold is holding pretty steady at $1,308.30 per ounce.

Likely snap elections in Spain and Italy could bring anti-EU and anti-immigrant parties into power. In a speech, financier George Soros said a global financial debt crisis especially concerning the EU could happen again.

St. Louis Fed President Bullard in comments from Japan said that U.S. interest rates may already have climbed to their “neutral level,” and he noted that it would be hard for the U.S. central bank to raise rates far above the levels of other central banks still in an accommodative posture. The 10-year Treasury yield in futures trading fell 7 basis points to 2.86%, a cumulative loss of 25 basis points since May 17. 

Ten-year sovereign debt yields also fell overnight by 11 basis points in the U.K. and 6 bps in Germany.

Released data so far today showed

  • A 2.0-point decline in Swedish consumer sentiment to a 9-month low.
  • A 3.2-point drop in Italian consumer confidence this month but unchanged sentiment among manufacturers.
  • Japanese unemployment holding steady at 2.5% in April for a third straight month. The job offers-to-applicants ratio continued to hover just south of 1.59. Employment was 2.6% higher than a year earlier.
  • French consumer confidence printed at its long-run average of 100 for a fourth straight time in May. That’s down from 104 in January and December.
  • Portuguese consumer confidence strengthened for a third straight month in May and was the highest reading in this 22-year data series.
  • M3 money growth in the euro area averaging 4.0% on year in February-April was down from a pace of 4.7% in November-January.
  • The Swiss trade surplus widened in April due mainly to a 3.4% drop in imports. The January-April surplus of CHF 9.42 billion was 28.3% narrower than a year earlier.
  • South Korean consumer confidence rebounded to a 2-month high of 108 in May from a 7-month low of 107 in April.
  • Icelandic CPI inflation decelerated 0.3 percentage points to 2.0% in May.

Markets in Singapore and Indonesia were closed today for the religious Vesak Day holiday.

Scheduled U.S. data to be released today include the Case Shiller house price index, the Dallas Fed manufacturing index, and the Conference Board index of consumer confidence.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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