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European stocks hit by Italian referendum woes

Monday 12:00 GMT.

Overview

Stock markets in Europe are slipping back, led by losses for embattled Italian financials, on concern about potential contagion spreading from the sector into the eurozone financial system after Italy’s reform referendum. Meanwhile the dollar is cooling after its sustained run higher, with the index tracking the world’s reserve currency against six of its rivals down 0.1 per cent, although it is holding the 101-point mark at 101.360.

Hot topic

Oil is likely to loom large over the week before Wednesday’s Opec meeting in Vienna, at which the producers’ organisation will consider cutting production. Brent crude has been volatile already tracking sentiment toward the prospects of an agreement. The international oil marker has returned to the flatline at $47.22 a barrel having been down 1.2 per earlier. Nymex WTI is down 0.2 per cent at $45.99. Oil prices had been buoyed in the first half of last week by hopes that members of the cartel would use this week’s meeting to agree to production cuts that would help address global oversupply. However, with negotiations in the run up to the meeting going down to the wire nervousness has returned to the market. In Friday’s half-session following the US Thanksgiving holiday, oil prices fell more than 3 per cent.

What to watch

Eurozone financial stocks — especially in Italy — are back in the spotlight in the run up to next weekend’s constitutional referendum in the country. Up to eight of the country’s banks could face pressure if prime minister Matteo Renzi steps down from office should he lose the vote.

Mr Renzi, who has said he will resign under those circumstances, has advocated a market solution to address the problems of Italy’s banking system. The political situation is being closely followed by financiers and policymakers across Europe and beyond, who worry about the implications of more wide-ranging problems in the Italian financial sector for sentiment toward wider eurozone banks. In opening trade on Monday, Unicredit shares fell 3 per cent in Milan, one of the biggest single falls on top-tier stock indices in the region. Intesa Sanpaolo fell 2.1 per cent. Generali, the insurer, fell 1.5 per cent.

Forex

The dollar is cooling off after its strong run higher following the victory of Donald Trump in the US election.

As well as the slip in the dollar index, the euro is up 0.7 per cent against it at $1.0653, while the pound is 0.1 per cent stronger at $1.2488.

The yen is making a notable rebound, strengthening by 1.1 per cent with Y111.89 required for a dollar.

Equities

European equities are slipping back in opening trade, with London’s FTSE 100 down 0.7 per cent and the Xetra Dax 30 in Frankfurt 0.9 per cent weaker. The pan-regional Euro Stoxx 600 is down 0.8 per cent.

The Euro Stoxx sub-index tracking banks is down 1.5 per cent, while the FTSE MIB in Milan is down 1.3 per cent.

Wall Street’s four main equities gauges staged a “grand slam” and closed at record highs in a half-day of trading on Friday. But the positive mood had not spilled over into Asia on Monday.

The stronger yen has helped push Japanese stocks into negative territory, taking it down 0.1 per cent by the close.

Hong Kong’s Hang Seng rose 0.5 per cent as did China’s Shanghai Composite. After market close on Friday, regulators announced a trading link between Hong Kong and China’s tech-focused Shenzhen Composite would go live on December 5. The index was up 0.1 per cent on Monday.

Futures trading is pointing to a slip of 0.4 per cent for Wall Street’s S&P 500 on Monday.

Fixed income

The yields on benchmark government debt are falling across the board, as investors buy back into sovereign bonds after the recent sell-off eases. The Yield on German 10-year Bunds, which fall when prices rise, is down 2 basis points at 0.22 per cent. US 10-year Treasury yield is down 4 basis points at 2.33 per cent.

Japan’s government bond market has snapped back today alongside the stronger yen. The yield (which moves inversely to price) on 10-year JGBs was down 2.4 basis points at 0.008 per cent, the biggest move since September 20 and the lowest level for the yield since the middle of this month.

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