NEW YORK, Aug 21 — European stock markets turned lower yesterday as political crisis in Italy weighed on sentiment, while US stocks snapped a three-day winning streak ahead of key Federal Reserve releases later in the week.
European markets had started higher, lifted by hopes for central bank and government stimulus measures. But markets faltered as events in Rome came to a boil.
Italian Prime Minister Giuseppe Conte resigned after lashing out at far-right Interior Minister Matteo Salvini for pursuing his own interests by pulling the plug on the government coalition.
The move leaves the eurozone's third largest economy in a political vacuum until President Sergio Mattarella decides whether to form a new coalition or call an election after talks with parties in the coming days.
Conte's departure “wasn’t a major surprise, it confirmed that the European Union (EU) is in for a heated autumn,” said Gorilla Trades strategist Ken Berman.
“The risk of a no-deal Brexit together with the Italian political crisis could hurt the already struggling European economy, not to mention the battered euro.”
Investors mostly fear a revival of a EU-Rome spat over deficits, which could weigh on eurozone cohesion, analysts said.
Awaiting the Fed
Meanwhile, US indices also finished solidly lower amid lingering unease over the US-China trade war and as US Treasury yields dropped.
Quincy Krosby, chief market strategist for Prudential Financial, said the pullback was unsurprising after US stocks gained more than one per cent on Monday.
She said investors were concerned about the Federal Reserve release on Wednesday of the minutes from the July 30-31 policy meeting when the US central bank cut the benchmark interest rate but Fed Chair Jerome Powell offered confusing signals about whether to expect additional rate cuts in 2019.
“The market clearly is pricing in a 25 point cut at the next Fed meeting,” Krosby said.
“I wouldn't put that much on tomorrow's minutes, but in a market that is concerned about growth and trade, the effective trend on corporate spending and ultimately hiring, any information that the market doesn't have now will be important.”
Powell also is set to deliver an address Friday at an annual central bank meeting in Jackson Hole, Wyoming.
Among individual companies, Home Depot jumped 4.4 per cent after it reported better-than-expected second-quarter profits. But the home-improvement retailer lowered its full-year sales estimate due to lower lumber prices as well as the potential hit to consumers from a new round of US tariffs on Chinese goods. — AFP
