Italy’s stocks close with 2.7% loss as political mess rattles nerves

  • Written by MarketWatch
  • Published in Economics

European stocks finished sharply lower Tuesday, led by a selloff in Italian equities. Investors were assessing the prospect of new elections in Italy, which could effectively serve as a referendum on the euro.

Meanwhile, political uncertainty in Spain hit Madrid-traded stocks, as Prime Minister Mariano Rajoy’s struggle to stay in power raised fears of new elections.

What markets are doing

Italy’s FTSE MIB index I945, -2.65%[1]  tumbled 2.7% to end at 21,350.88. Investors also fled Italian debt, with the 2-year bond yield TMBMKIT-02Y, +157.06%[2]  recently surging to 2.42%, as prices sank. Bond prices move in the opposite direction of yields.

See: In topsy-turvy Italian markets, sovereign debt seen as riskier than corporate bonds[3]

In Spain, the IBEX-35 index IBEX, -2.49%[4]  gave up 2.5% to close at 9,521.30, as traders fretted about the future of Rajoy’s government.

France’s CAC 40 PX1, -1.29%[5]  fell 1.3% to end at 5,438.06, and Germany’s DAX 30 index DAX, -1.53%[6]  sank 1.5% to 12,666.51. In London, the FTSE 100 UKX, -1.26%[7]  moved down 1.3% to finish at 7,632.64.

Those broad losses led to a 1.4% fall for the Stoxx Europe 600 Index SXXP, -1.37%[8] to 384.47. That adds to a 0.3% decline on Monday[9], when Italian stocks also suffered.

The euro EURUSD, -0.6366%[10]  recently traded at $1.1547 from $1.1625 on Monday, moving below $1.16 for the first time since November.

What’s driving markets

Worries grew that Italy will be forced to hold a new general election. The country’s president, Sergio Mattarella, on Monday blocked two antiestablishment parties from taking power[11] by...

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