US stocks drop as Italian woes trigger selloff; dollar rallies

Bloomberg

Stocks declined, while Treasuries and the dollar rallied as the escalating political crisis in Italy engulfed markets.
The S&P 500 Index dropped for a third session, following the biggest decline since March in the Stoxx Europe 600 Index, as Italian political turmoil lead to gridlock and set the course for another election. The flight from risk began in Italy’s bonds, with its 10-year yield spiking, leading the euro to slide against the dollar. That sent investors fleeing to safer assets, sending the Treasury benchmark yield below 2.9 percent and the yen rising.
Earlier, the MSCI Asia Pacific Index slipped as shares of iPhone screen makers slumped on a report that Apple Inc. is shifting to next-generation technology.
The Topix index posted its longest losing streak since September 2016.
Political turmoil in Italy is rekindling memories of the euro zone’s woes of the past decade, and caution is spilling over into the wider market. Pro- and anti-European forces are at loggerheads in Rome, with another election expected as early as September after parties failed to form a government in the wake of a poll in March.
“These developments are concerning,” Alessio de Longis, a New York-based portfolio manager at Oppenheimer Funds Inc., told Bloomberg Television in regard to Italy’s political landscape. “The market has taken a completely different tone, it no longer believes what the parties are saying. The markets will be really unable to move forward into a different narrative” until the Italian outlook is clearer, he said.
Elsewhere, the Turkish lira weakened after surging Monday when the central bank took steps to simplify its monetary policy. Many Southeast Asian markets were closed for holidays Tuesday, including Singapore, Indonesia, Malaysia and Thailand.
EU trade chief Cecilia Malmstrom and US Commerce Secretary Wilbur Ross are scheduled to meet on Wednesday in an informal World Trade Organization ministerial in Paris. The US employment report for May is due on Friday. It’s the last before the June Fed meeting. Automakers report May US sales the same day. Also Friday: China’s stock market joins 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 declined 0.7 percent in New York. The Stoxx Europe 600 Index sank 1.2 percent, the largest tumble in almost 10 weeks. The UK’s FTSE 100 Index fell 1.2 percent, the largest tumble in almost 10 weeks. Germany’s DAX Index decreased 1.1 percent to the lowest in almost four weeks. The MSCI Emerging Market Index declined 1 percent to the lowest in more than five months.
The Bloomberg Dollar Spot Index rose 0.2 percent to the highest in more than five months. The euro sank 0.4 percent to $1.157, the weakest in more than 10 months. The British pound declined 0.3 percent to $1.3278, the weakest in about six months. The Japanese yen climbed 0.4 percent to 108.95 per dollar, the strongest in five weeks. The Turkish lira dipped 0.2 percent to 4.5933 per dollar.
The yield on 10-year Treasuries declined six basis points to 2.87 percent, reaching the lowest in almost six weeks on its sixth straight decline.
Germany’s 10-year yield dipped three basis points to 0.31 percent. Italy’s 10-year yield climbed 31 basis points to 2.991 percent.
West Texas Intermediate crude declined 2.3 percent to $66.30 a barrel, reaching the lowest in four weeks.