Thread: Dow tumbles 430 points on Italy fears and US-China trade tensions

Dow tumbles 430 points on Italy fears and US-China trade tensions

by Nathan @CNNMoneyInvest May 29, 2018: 12:59 PM ET

The Dow fell as much as 430 points -- 1.6% -- on fears about a political crisis in Italy and renewed trade tensions between the United States and China. The index turned negative for the year.

The S&P 500 and the Nasdaq slipped 1.3% and 0.7% apiece.
Italy is headed for new elections, and investors worry the result could throw the European Union into turmoil. The yield on Italy's debt surged as investors demanded higher payouts in return for taking on risk.

In Wall Street's worst-case scenario, Italy, the third-largest economy in the European bloc, would vote to leave the euro.

"It's got the earmarks of a disgruntled Italy," said Arthur Hogan, chief market strategist at B. Riley FBR. "We've gotten to the point now where it's catching people's attention."

The White House also announced Tuesday that it would impose 25% tariffs on $50 billion worth of goods from China and place new limits on Chinese investments in the United States. The move caught investors by surprise. Treasury Secretary Steven Mnuchin said a trade war with China was "on hold" less than 10 days ago.

Signs of fear showed up across the market on Tuesday.
The VIX (VIX), Wall Street's fear gauge, spiked 17% to its highest level since May 4. CNNMoney's Fear & Greed Index pushed into fear territory. A week ago, the index was flashing greed.

Investors rushed to safety in bonds. The yield on the 10-year US Treasury fell sharply to 2.81%.

Last month, the 10-year yield crossed 3% for the first time since 2014 as the Federal Reserve raises interest rates. Yields move in the opposite direction of prices.

Banks slumped on the bond rally. Falling bond yields can make it harder for banks to make money on the interest they charge for loans.

JPMorgan Chase (JPM) dropped 4%, while American Express (AXP) and Goldman Sachs (GS)lost 3.5%.
As yields fell, investors headed to higher-dividend stocks.

Coca-Cola (CCE)was the only positive company on the Dow.

The utility sector, another safety play, was the sole sector on the S&P 500 in the green.

"It's a typical risk-off kind of day," Hogan said.

Meanwhile, falling oil prices put pressure on energy stocks.

Oil prices have slumped around 10% since Saudi Arabia's energy minister said on Friday that Saudi-led OPEC and Russia would pump more oil. US crude dipped 2.5% to $66 a barrel.

http://money.cnn.com/2018/05/29/inve...500/index.html

Oh that's wonderful! Italy may leave the EU!! Oh I sure hope it does. That would be fantastic!! Oh calm down, DOW, stop being stupid all the time, you should be buying up stocks with the prospect of a good thing like Italy leaving the EU. The EU stinks to high heaven. It's an attempt at hegemony, the end of individual nations, the destruction of independence and variety, the mushrooming of people and former countries into a a "bloc". We don't like "blocs" in America, we like countries.

Italy crisis rocks markets. Here's why investors are worried

by Alanna Petroff @AlannaPetroff
May 29, 2018: 11:53 AM ET

Stock markets around the world plunged on Tuesday and investors demanded higher yields in return for taking on Italian government debt.

The main stock index in Italy extended its losses for the week, dropping another 3%. The country's banks were hardest hit, with some stocks falling by over 5%.
Investors are worried that political turmoil in Italy could cause pain beyond the country's borders. The yields on Spanish, Portuguese and Greek debt surged, and US stocks opened lower.

Italy is heading for new elections after populist politicians failed to form a government. Radical parties could gain even more ground, and investors are worried that the vote will turn into a de-facto referendum on the euro.

Some market observers worry Italy may ultimately crash out of the European Union -- a scenario they've dubbed "Italexit" or "Quitaly."

Contagion threat

The big risk is that Italian politicians will stop following the rules of the euro or perhaps even seek to ditch the currency.

The euro dropped 1% against the US dollar on Tuesday, a reflection of investor concerns.

"A genuine euro crisis is the worst case scenario," said Florian Hense, an economist at Berenberg Bank.

Italy has the third largest economy in the eurozone, accounting for 15% of the region's GDP. That's much bigger than Greece, the source of the last eurozone crisis.

"In the unlikely case of a messy Italexit, eurozone growth outside Italy may stall for a couple of quarters while the authorities deploy their tools to contain contagion risks and shore up the most affected banks," said Holger Schmieding, chief economist at Berenberg Bank.

It's not clear what platform populists will run on in the new elections. But analysts say it's unlikely that Italy would stop using the euro.

Still, increased spending by a new Italian government could ratchet up market tension.

Years of stagnation and a lack of reform have pushed Italy's government debt above €2 trillion euros ($2.3 trillion), equivalent to more than 130% of annual economic output.

That's the third highest level of indebtedness in the world after Japan and Greece.

Ratings agency Moody's warned Friday it could cut Italy's credit rating -- already just two notches above "junk" status -- because the populists' spending plans risked weakening its fiscal position and stalling efforts to reform the economy.

A majority of Italy's government debt is owned by Italians, but the European Central Bank also owns a big chunk, along with banks and investors in France, Luxembourg, Germany and Spain.

Uncertain future

Italian populists may back down from talk of holding a referendum on the euro or leaving the European Union.

"Many voters, even if they are very unhappy with the status quo ... do not really want to leave the euro," said Schmieding.

"They do not like the thought ... that part of their savings may go down the drain in an exit from the euro."

Still, many investors are worried about a region that has been repeatedly battered by debt crises.

Some bank stocks were down by about 6% in Spain, which has its own political problems. Prime Minister Mariano Rajoy faces a confidence vote in parliament on Friday.

http://money.cnn.com/2018/05/29/inve...nds/index.html