Italian banks sink on early election worries

Concern over Italy’s banks and Britain’s national election dominated holiday-thinned European financial markets on Monday, pushing stock markets lower after Asian share indices fell back off two-year highs.

Sterling, hammered by a slump for Prime Minister Theresa May’s Conservatives in opinion polls last week, recovered after weekend polls confirmed the trend but showed her still on course to win next week’s vote.

European share prices were lower (EU) overall, but Italian banks and blue chips fell as worries over recapitalisations of regional Italian lenders bled over into a second week.

Weekend reports that Italy’s main parties could converge on a proportional electoral law pointed to growing chances of an early election that may yield an indecisive hung parliament.

“The risk of early elections has suddenly increased to 60 percent,” LC Macro Advisers founder Lorenzo Codogno said. “A hung parliament is thus the most likely outcome.”

European blue chips (STOXXE) overall slipped 0.2 percent, but losses for Banco BPM (MI:BAMI), Unicredit (MI:CRDI) and others drove a 3.4 percent loss for Italy’s banking index – its biggest in nearly four months (FTIT8300).

Milan’s main blue-chip index fell almost 2 percent (FTMIB) while Germany’s DAX (GDAXI) was little changed.

Asian markets were also lower overall after some early gains that largely shrugged off another missile launch by North Korea, the broad MSCI index of Asia-Pacific shares outside Japan (MIAPJ0000PUS) dipping 0.2 percent.

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