May 29, 2018
U.S. Futures Fall as Italy’s Political Turmoil Hits Markets
U.S. equity futures tumbled, following global shares lower, as Italy’s political turmoil deepened. U.S. 10-year Treasuries and the dollar advanced as the euro touched its lowest level since July. Oil extended losses after Saudi Arabia and Russia said they are mulling a boost to production later this year. S&P 500 Index futures declined 0.7 percent in New York as the risk of fresh elections in Italy mounted, even as premier-designate Carlo Cottarelli puts together a cabinet. In Spain, the opposition called a no-confidence vote against Prime Minister Mariano Rajoy, increasing the chance of a snap election. Dow Jones and Nasdaq futures matched the S&P decline. “There was a lot of complacency in the market recently, so this is a brutal wake-up call for investors who had forgotten about political risks in Europe and especially in Italy,” said Andrea Tueni, head of sales trading at Saxo Banque France. “The risk is that the populist parties gain ground in the next Italian election, which would be really bad news for the euro zone. Clearly, investors are moving to the sidelines for now.” Events in Italy are reviving worries over the future of the euro zone. A gauge measuring the likelihood of Italy leaving the currency union within the next 12 months jumped to 11.3 percent in May from 3.6 percent in April, according to research group Sentix. Risk-off sentiment prevailed even as North Korean leader Kim Jong Un was said to have dispatched one of his top aides to the U.S. for talks before a planned summit with President Donald Trump, in a sign that preparations for the June 12 meeting in Singapore are moving forward.
Italy Woes Rock Global Assets as Traders Dump Risk: Markets Wrap
The escalating political crisis in Italy engulfed markets on Tuesday, triggering risk-off moves and a flight to safety worldwide. Treasuries rallied with core European debt as gold and the yen gained, while Italian bonds plunged and the euro retreated. The benchmark U.S. bond yield briefly dipped below 2.8 percent, while the yield on 10-year gilts and bunds also tumbled. American equity futures retreated alongside the Stoxx Europe 600 Index. The MSCI Asia Pacific Index fell as shares of iPhone screen makers slumped on a report that Apple Inc. is shifting to next-generation technology. The Topix index posted its longest losing streak since September 2016 as Japan’s currency jumped. Political turmoil in Italy is rekindling memories of the euro zone’s woes of the past decade, and caution is spilling over into the wider market. Pro- and anti-European forces are at loggerheads in Rome, with another election expected as early as September after parties failed to form a government in the wake of a poll in March. “These developments are concerning,” Alessio de Longis, a New York-based portfolio manager at Oppenheimer Funds Inc., told Bloomberg Television in regard to Italy’s political landscape. “The market has taken a completely different tone, it no longer believes what the parties are saying. The markets will be really unable to move forward into a different narrative” until the Italian outlook is clearer, he indicated.
Shorting Italian Debt Delivers 24% Return for ETP Investors
A well-timed bet against Italian debt is paying off as government bonds reel across the globe. An exchange-traded product that aims to deliver five times the inverse performance of 10-year Italian sovereign bonds climbed as much as 24 percent Tuesday as political turmoil sweeps Rome and sparks fears for the euro project. That’s the biggest one-day jump ever for the ETP that is typically used by traders to take advantage of short-term price swings. Yields on benchmark 10-year notes hit the highest level in four years Tuesday as Italian populist leaders who oppose European Union spending restrictions began mobilizing for a fresh election. It’s a quick win for the investors that poured a record $8.2 million euros ($9.5 million) into the Boost BTP 10Y 5x Short Daily product over the past two days. The security, which has been trading since 2015, uses futures contracts on Italian sovereign debt to amplify moves in the underlying asset in order to deliver outsize returns.
China Considers More U.S. Coal Imports to Cut Deficit
China is considering a plan to buy more American coal as part of an effort to narrow its trade deficit with the U.S., according to people with knowledge of the matter. Chinese officials are currently looking at boosting purchases from West Virginia in particular, said the people, who asked not to be identified because they’re not authorized to speak publicly. They didn’t say whether Beijing is looking at buying more supplies from other states. A final decision hasn’t been made, they said. The country’s top economic planner, the National Development and Reform Commission, referred questions to the National Energy Administration; officials there didn’t reply to an email seeking comment. China this month pledged to increase purchases of U.S. energy and agricultural goods as a way to reduce its $375 billion merchandise trade deficit and diffuse an escalating trade war between the world’s biggest economies. More imports by the Asian nation would be a boon for American coal-producing states — including West Virginia — that supported Donald Trump’s presidency on the back of his pledge to revive the ailing industry. While China pursues a long-term goal of lowering coal’s share of its energy mix, the country still produces, consumes and imports more of the fuel than any other nation. It purchased 271 million metric tons from overseas last year, according to customs data. The U.S. exported about 3.2 million short tons to China, data from the Energy Information Administration show. The U.S. more than doubled coal exports to Asia in 2017 to 32.8 million tons, while total overseas shipments rose 61 percent year-on-year. India was the biggest importer of thermal coal, used in coal-fired power stations, according to the EIA. Trump has promised to revive the U.S. coal industry by lifting restrictions on it. In February 2017, he signed legislation repealing a regulation meant to protect streams from the effects of coal mining. In October, his administration proposed the repeal of the Clean Power Act, which was designed to cut carbon dioxide emissions from electricity generation.