Global stocks and US equity futures were set to end the week in a sea of red as trade war tensions resurfaced after the US was said to hold off on Huawei licenses in retaliation for China's halting of US crop imports...
... while fears of a government crisis in Italy sent the country's bond plunging, after Deputy PM Salvini called for a snap election, fanning political uncertainty and prompting a haven bid in bunds. Italy's BTPs tumbled led by the belly, with the 5-year yield rising 30bps to 1.14% and the 10-year yield up 25bps to 1.78%, widening the BTP-bund spread by 29bps to 238bps, amid a violent selloff as 10-year futures volumes surge to 250% of the 10-day average.
The fresh risk-off episode left gold on course for its best week in three years, Japan’s yen near an eight-month high and bonds surging. Meanwhile, US stock futures were down as much as 0.5%, while MSCI’s broadest index of world shareswas headed for its second straight week of declines, after one of its worst days in years on Monday.
The European session was uglier, and was led lower by a 2.4% slump in Italian stocks after Matteo Salvini, the leader of one of the country’s ruling parties, the League, pulled his support for the governing coalition on Thursday. The Stoxx Europe 600 index’s decline was led by automaker shares.
“It has been a very volatile week,” said Elwin de Groot, Rabobank’s head of macro strategy. “Until recently, the markets’ view was that this trade war will be resolved, but clearly now the thinking is that maybe this is not the case and it could be accelerating from here,” and Italy and Brexit worries are now adding to that, he said.
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