Stocks advance, bonds slide as Italy concerns fade; dollar falls

Bloomberg

Stocks rose along with Treasury yields as investors deemed the market reaction to Italy’s political turmoil overwrought. The dollar slipped and oil rose.
The S&P 500 Index headed for the first gain in four days as US 10-year yields pushed above 2.84 percent, boosting financial shares that had sold off on Tuesday as worries about Italy leaving the euro spread. The greenback declined the most in nearly three weeks. West Texas crude edged higher.
In Europe, Italy’s 10-year yield fell as much as 32 basis points as the country successfully passed a key test of appetite for its debt and rifts emerged between populist leaders. The euro rose the most since March, as German jobs data topped estimates and strong CPI readings across Europe added to the sentiment.
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. The concerns add to a growing list that includes the strength of the global economy, North Korea and simmering trade tensions.
“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.”
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 rose after a string of declines in the wake of major producers’ plans to step up output. Saudi Arabia, Kuwait and the UAE will meet in Kuwait City on Saturday to discuss supply. Financial shares led the MSCI Asia Pacific Index down as the region played catch up to the previous day’s selloff.
EU trade chief Cecilia Malmstrom and US Commerce Secretary Wilbur Ross are scheduled to meet Wednesday in an informal World Trade Organization ministerial in Paris. The US employment report for May is due Friday. It’s the last before the June Fed meeting. Automakers report May US sales the same day. Also Friday: some onshore Chinese stocks join MSCI Inc.’s global indexes. On Saturday US Secretary of Commerce Wilbur Ross will travel to Beijing for more talks with Vice Premier Liu He on topics including ZTE Corp. and trade.
The S&P 500 Index rose 0.6 percent in New York. The Stoxx Europe 600 Index increased 0.1 percent. The UK’s FTSE 100 Index increased 0.2 percent. Germany’s DAX Index advanced 0.7 percent, the biggest gain in more than a week. The MSCI Emerging Market Index sank 1.2 percent to the lowest in almost six months. The MSCI Asia Pacific Index dropped 1.4 percent to the lowest in almost 16 weeks on the biggest tumble in two months.
The Bloomberg Dollar Spot Index sank 0.4 percent, the largest decrease in almost three weeks. The euro climbed 0.7 percent to $1.1624, the biggest increase in more than four months. The British pound jumped 0.4 percent to $1.3297, the largest climb in more than six weeks. The Japanese yen dipped 0.1 percent to 108.84 per dollar. The Turkish lira jumped 1.9 percent to 4.4638 per dollar, the strongest in almost two weeks.
The yield on 10-year Treasuries jumped six basis points to 2.84 percent. Germany’s 10-year yield rose nine basis points to 0.35 percent. Italy’s 10-year yield sank 24 basis points to 2.922 percent, the largest tumble in almost six years.
West Texas Intermediate crude gained 0.7 percent to $67.20 a barrel, the first advance in more than a week.