INTERNATIONAL - Global markets regained some composure on Wednesday as panic over the Italian political crisis subsided and encouraging economic data helped steady nerves in Europe.
Treasuries fell back with the dollar as the haven bid ebbed, and the euro jumped.
Italian bonds rebounded, with the 10-year yield falling as much as 23 basis points as the country successfully passed a key test of appetite for its debt and populist leaders ruled out a last ditch bid to form a government.
German jobs data topped estimates and there were CPI beats in several states in the nation as well as in Spain, all of which added momentum to a bounce in the euro.
The common currency’s strength weighed on equities, with the Stoxx Europe 600 Index only edging higher as S&P 500 futures climbed.
Financial shares led the MSCI Asia Pacific Index down as the region played catch up to the previous day’s selloff. As panic eased, U.S. 10-year bonds gave up some of their gains from Tuesday to send yields back toward 2.9%.
Traders are catching their breath after the unprecedented Italian bond slump spilled over into global risk assets.
While the prospect of snap Italian elections, which could effectively become a referendum on the euro continues to loom, some investors see the selloff as overdone while the timing of any vote remains unclear.
“Ultimately we think Italy stays in the club,” said Gordon Brown, London-based co-head of global portfolios at Western Asset Management Co., which had made short bets on the debt of the euro region’s No. 3 economy last week but is now closing out positions. “Yields will settle down at a more reasonable level, but one that reflects ongoing political risk premium.”
Here’s a roundup of Italian political turmoil and Tuesday’s market rout.
Investors are also keeping an eye on the White House, with the Trump administration plowing ahead with plans for tariffs on Chinese goods and giving conflicting signals on talks with North Korea.
Elsewhere, oil stabilized after a string of declines in the wake of major producers’ plans to step up output. Saudi Arabia, Kuwait and the U.A.E. plan to meet in Kuwait City on Saturday to discuss supply.
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