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Europe close: Italian political drama in focus against backdrop of geopolitical worries

By Alexander Bueso

Date: Monday 12 Aug 2019

Europe close: Italian political drama in focus against backdrop of geopolitical worries

(Sharecast News) - European investors' focus on Monday shifted from Brexit and the US-China trade tensions to another bout of political drama in Italy.
During the previous week, and in the words of analysts, League leader Matteo Salvini, had pulled the plug on the government of Prime Minister Giuseppe Conte but according to sources cited by Ansa on Monday, it did not look like his party and his future coalition partners, Silvio Berlusconi's Forza Italia and Brothers of Italy would be able to push for elections next autumn.

Instead it appeared that they would have to be more patient.

Cushioning the blow, after the close of trading last Friday, debt rating agency Fitch had decided to keep its rating on the country's long-term debt at BBB - its lowest investment grade rank - even if with a negative outlook attached, meaning that a downgrade was still possible in the short-term.

By the end of trading, the benchmark Stoxx 600 was drifting lower by 0.21% lower to 370.79, alongside dip of 0.17% to 11,674.33 for the German Dax while the Cac-40 was down by 0.39% to 5,307.28.

Italian 10-year government notes recouped over a third of the prior session's losses on the back of the decision from Fitch, with their yield falling by ten basis points to 1.70%.

Similarly-dated Portuguese debt also did well, with the yield slipping by five basis points to 0.24% after Fitch raised its outlook on the Iberian country's sovereign debt from 'stable' to 'positive', possibly foreshadowing an upgrade.

Leaving politics in Rome to one side, geopolitics remained in the spotlight amid reports that protests in Hong Kong were becoming increasingly violent, leaving traders concerned that the situation in the special administrative area might become another flash point in relations with China.

In parallel, the US dollar was down by 0.06% to 7.0581 against the Chinese yuan, after what some market commentary said was another move from China's central bank overnight to ensure an orderly weakening in the country's currency.

Nonetheless, also last Friday, after the market close on Wall Street, White House trade advisor, Peter Navarro, said that Washington would respond forcefully should Chinese authorities try to use the currency to "neutralise" the impact from tariffs.

There was little in terms of fresh economic news.

In Portugal, the national statistics office confirmed that the Iberian country had flipped into deflation in July, with harmonised consumer prices running at -0.7% year-on-year, after a rise of 0.7% during the month before.

To the east, the latest data in Russia revealed a pick up in the year-on-year rate of economic growth from 0.5% in the first quarter of 2019 to a 0.9% clip for the three months to June.

Stock in lighting solutions specialist Osram shot higher after Switzerland's AMS offered to top a rival offer from private equity outfits Bain Capital and Carlyle by 10.0%.

Shares of Swiss engineer, ABB, were also wanted, after announcing that it had pinched Sandvik's Bjorn Rosengren as its next chief executive officer.



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