European stock markets and the euro breathed a sigh of relief Monday after Italy’s president vetoed the nomination of a fiercely eurosceptic economy minister, averting a potential eurozone crisis, analysts said.
Oil prices extended losses, meanwhile, after Saudi Arabia and Russia signalled they could raise output, while Asian stock markets rose on signs that Donald Trump’s summit with Kim Jong Un could be back on.
The Paris and Frankfurt equities markets rose, while the Milan FTSE Mib stock exchange had a volatile morning, jumping nearly two percent at open, only to then lose 0.2 percent in mid-morning trading.
Italy is mired in political chaos over the anti-establishment Five Star Movement and the far-right League’s bid to form a government.
President Sergio Mattarella vetoed the nomination of fierce eurosceptic Paolo Savona as economy minister, prompting the anti-establishment alliance’s prime minister-elect to step aside.
The president now looks set to appoint Carlo Cottarelli, a pro-austerity economist formerly with the International Monetary Fund, to lead a technocrat government, ahead of possible new elections in the autumn.
The Italian government bond market also rose as did the euro which stood around 0.3 percent higher against the dollar amid relief that a eurozone crisis had been averted for now.
However analysts said the euro’s gains were limited by fears that Monday’s positivity may not last.
“Mr Mattarella’s refusal on Sunday to approve a proposed eurosceptic economic minister gave the euro a much-needed push,” said Hussein Sayed, chief market strategist at FXTM.
“However, it is far from certain that Mattarella’s current move will end Italy’s drama.”
Holger Schmieding, chief economist at Berenberg, agreed.
“Mattarella has made it clear that he will not allow any policy that could put Italy on a slippery slope towards a major confrontation with the EU that could potentially jeopardise Italy’s euro membership,” he wrote.
Nonetheless, the clash between Mattarella and the Five Star Movement-League alliance “throws Italy into an institutional crisis with an unknown outcome”, he added.
The single currency’s gains were also limited by the prospect of upheaval in Spain, where Prime Minister Mariano Rajoy could face a no-confidence vote after his party was found guilty of benefiting from illegal funds in a massive graft trial.
– Oil slips –
Separately, the WTI oil futures contract tanked Monday, extending last week’s losses, after Saudi oil minister Khaled al-Faleh said his country could open the taps wider in the second half of the year to insure against any supply shocks.
His Russian counterpart Alexander Novak said they discussed whether they need to ease production limits set in 2016.
The comments come as supply worries increase, with major producer Venezuela hit by economic uncertainty, Iran facing painful export sanctions and demand seen picking up.
With the London markets closed for a bank holiday, there was no official quote available for Brent oil, the European benchmark.
Asian markets meanwhile mostly rose on renewed hopes for a Trump-Kim summit after the US president appeared Friday to make a U-turn 24 hours after cancelling the meeting.
On Sunday Trump tweeted that a US team “has arrived in North Korea to make arrangements for the summit”.
He added: “I truly believe North Korea has brilliant potential and will be a great economic and financial Nation one day. Kim Jong Un agrees with me on this. It will happen!”
– Key figures around 0900 GMT –
Milan – FTSE Mib: DOWN 0.20 percent at 22,354.32 points
Paris – CAC 40: UP 0.18 percent at 5,552.75
Frankfurt – DAX 30: UP 0.16 percent at 12,959.32
London – FTSE 100: Closed for public holiday.
Euro/dollar: UP at $1.1664 from $1.1661 at 2100 GMT on Friday
Pound/dollar: UP at $1.3316 from $1.3312
Dollar/yen: DOWN at 109.46 yen from 109.55 yen
Tokyo – Nikkei 225: UP 0.1 percent at 22,481.09 (close)
Hong Kong – Hang Seng: UP 0.7 percent at 30,792.26 (close)
Shanghai – Composite: DOWN 0.2 percent at 3,135.08 (close)
New York – Dow: DOWN 0.2 percent at 24,753.09 (close)
Oil – West Texas Intermediate: DOWN $1.71 at $66.72 per barrel