EUROPE MARKETS: Italian Stocks Lead Europe Lower As Populist Parties Seek To Form Government
10 Maggio 2018 - 06:33PM
Dow Jones News
By Sara Sjolin, MarketWatch
Pound drops after Bank of England keeps rates on hold
European stocks broke a four-day winning run on Thursday, with
Italian shares dragging the benchmark index lower as euroskeptic
parties moved closer to form a coalition government.
Several European markets were closed for Ascension Day,
including Switzerland, Austria, the Nordics and Greece.
In the U.K., stocks moved higher as the pound dropped after the
Bank of England kept rates on hold and lowered its inflation and
economic growth forecasts at "Super Thursday."
What are markets doing?
The Stoxx Europe 600 index fell 0.1% to 391.97, after closing at
its highest level since Feb. 1 on Wednesday
(http://www.marketwatch.com/story/european-equities-rally-boosted-by-gains-for-oil-stocks-2018-05-09).
Italian stocks saw the biggest losses, with the FTSE MIB index
ending down 1% at 24,033.90. The yield on 10-year Italian
government bonds rose 6 basis points to 1.934%, according to
Tradeweb. Higher yields can signal investors are becoming more
nervous about the country's finances and therefore demand a higher
risk premium to buy the bonds.
Germany's DAX 30 index picked up 0.6% to 13,022.87, while
France's CAC 40 index added 0.2% to 5,545.95. The U.K.'s FTSE 100
index climbed 0.5% at 7,700.97
(http://www.marketwatch.com/story/ftse-100-rises-as-rbs-jumps-after-doj-settlement-2018-05-10),
ending at its highest level since Jan. 23.
The euro was trading at $1.1894, up from $1.1853 late Wednesday
in New York. The pound fetched $1.3487, down from $1.3547 late
Wednesday.
What is driving markets?
Italian stocks underperformed the rest of Europe as leaders of
Italy's far-right League party and populist 5 Star Movement moved
closer to forming a new government
(http://www.marketwatch.com/story/italian-antiestablishment-groups-close-to-reaching-coalition-deal-2018-05-10),
potentially ending more than two months of political gridlock. Such
a coalition would create one of Europe's biggest euroskeptic
alliances, feared to muddle Italy's relationship with the European
Union and throw the Italian economy into disarray.
In the U.K., the pound fell and stocks rose after the Bank of
England kept rates on hold and offered a somewhat confusing
forecast for the future of monetary policy. Gov. Mark Carney said
the bank still expects to raise its key interest rate in coming
years
(http://www.marketwatch.com/story/boe-says-slowdown-in-uk-growth-likely-temporary-2018-05-10),
but that it depends on the how the economy evolves. Carney brushed
off concerns about the slowdown in growth in the first quarter,
saying it was likely temporary due to harsh weather and probably
not as severe as initially estimated.
What are strategists saying?
"Sterling markets have interpreted today's [BOE] decision and
inflation report as moderately dovish with the pound initially
falling. In our view, this reaction seems somewhat overdone," said
Dean Turner, U.K. economist at UBS Wealth Management, in a
note.
"Undoubtedly, the tone from the bank has shifted from a hawkish
stance in February to a more balanced one today, but we don't see
this as outright dovish. We believe the pound should recover some
of its losses in the months ahead as the data confirms that the
first quarter slowdown was nothing more than a temporary glitch,"
he said.
Stock movers
Royal Bank of Scotland Group PLC (RBS.LN) (RBS.LN) jumped 3.8%
after news it will pay $4.9 billion in a settlement with the U.S.
Department of Justice
(http://www.marketwatch.com/story/rbs-to-pay-49-billion-in-settlement-with-department-of-justice-2018-05-10)
over its role in the mis-selling of toxic mortgage-backed
securities between 2005 and 2007. The settlement was smaller than
feared and is seen as clearing the way for the U.K. government to
sell its 71% stake it still holds in the lender.
BT Group PLC (BT.A.LN) (BT.A.LN) slumped 7.4% after the
telecommunications company said it would cut 13,000 jobs over the
next three years and issued a profit warning for fiscal 2019
(http://www.marketwatch.com/story/bt-group-to-axe-13000-jobs-warns-on-profit-2018-05-10).
Randgold Resources Ltd. (RRS.LN) (RRS.LN) slid 7%. The precious
metals miner said pretax profit well 27% in the first quarter
(http://www.marketwatch.com/story/randgold-resources-pretax-profit-drops-27-2018-05-10)
due lower gold sales and higher production costs.
Next PLC (NXT.LN) rose 6.1% after the British retailer raised
its full-year pretax profit guidance
(http://www.marketwatch.com/story/next-raises-pretax-profit-guidance-2018-05-10).
UniCredit SpA (UCG.MI) added 1.8% after the Italian lender said
net profit jumped 23% in the first quarter
(http://www.marketwatch.com/story/unicredit-net-profit-rises-23-2018-05-10).
(END) Dow Jones Newswires
May 10, 2018 12:18 ET (16:18 GMT)
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