Financial Markets Summary 29 May 2018

European cash equity markets are broadly lower at the closing bell (FTSE -1.2%, DAX -1.3%, IBEX -2.4%, FTSEMIB -2.4%). US cash equity markets are nursing heavy declines at the closing bell (DJIA -1.6%, S&P -1.2%, NASDAQ -0.5%).

Spanish and Italian stocks have led declines as their respective government bond yields rose on recent political uncertainty. Italian bonds were the worst hit however with 10-year yields up around 32 basis points while Spain added around 8 basis points for the day. 

Most recently, Italian TV reported that the parties are considering a vote on July 29th or August 5th. Perceived safe-haven assets have rallied meanwhile with core EU bonds and Treasuries firmly in the green while the Japanese Yen leads in currency space. 

The Euro is among the worst performers meanwhile on the political risk while the Dollar Index is ahead off the fresh YTD high above 95 we saw earlier today. 

On the data front, S&P CaseShiller house prices were mixed while consumer confidence rose to 128.0 (f/c. 128.2) from 125.6. Still to come today, possible comments from the ECB’s Coeure, Villeroy and Lautenschlaeger.


US Closing Report

Financials are the notable underperformer, weighed by losses in US government bond yields – US 10-year borrowing costs have shed around fifteen basis points to 2.78%. 

Oil prices have also added to earlier losses this afternoon with US crude futures settling at $66.73 (-$1.15). In FX, the Dollar Index rose to a new YTD high today and is still flirting with the 95 level while the Japanese Yen is at the top of the G10 pile amid broad risk aversion, stemming from Italian political uncertainty. 

Most recently, ANSA reported that Italian PM designate Cottarelli is said to be considering giving up the mandate, allowing for a possible election on July 29th. Rating agency DBRS said the debt situation in Italy is still manageable. 

We also heard from the ECB’s Lautenschlaeger who said they remain confident in the strength of the economy but the recovery in inflation is not as convincing. 

She added that June might be the month where they decide once and for all to gradually end asset purchases by the end of the year.

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