The Tuesday Market Minute

  • Global stocks ease as investors return focus to dollar strength, inflation concerns 
  • Italy's political chaos adds new European worry as borrowing costs surge, stocks tumble, amid spending plans of radical new government 
  • U.S. Dollar holds at fresh five month highs as investors look for yield in flat markets 
  • Oil prices returning to $80 push as Venezuelan elections prompt sanction/supply threat
  • U.S. stock futures point to modest opening bell gains after Monday's China deal-led rally

Global stocks were mixed Tuesday as investors shifted their attention from the temporary thawing of trade tensions between the U.S. and China to focus on the impact of a strengthening dollar and the potential fallout from the latest political chaos in Italy. 

Even with officials in Washington and Beijing declaring a near-term truce in the brewing dispute over tariffs and access to markets in the world's two biggest economies, investors were unwilling to extend Monday's gains in Asia markets, given both the lack of detail on any agreement between the two sides and the persistent strength of the greenback, which drew investors with the prospect of higher interest rates from a hawkish Federal Reserve.

The region-wide MSCI Asia ex-Japan index was marked 0.12% higher heading into the end of the session, having traded in negative territory for much of the day, as emerging market indices suffered from the dollar's recent gains.  Japan's Nikkei 225 closed 0.18% lower on the day at 22,960.34 points.

The dollar index, which benchmarks the greenback against a basket of six global currencies, traded modestly lower than its Monday close, but, at 96.63, remains closely-wedded to its 2018 high as investors bet the U.S. economy will growth by at least 3% this year and surging oil prices will stoke inflation within it.

In that respect, the ongoing rise in oil prices remained dollar-supportive, as crude benchmarks rose to new three-and-a-half year highs following the re-election of President Nicolas Maduro in Venezuela earlier this week and the likely sanctions the disputed poll will elicit from Washington.

Brent crude contracts for July delivery, the global benchmark, were seen 28 cents higher from their Monday close in New York and changing hands at $79.44 each while WTI contracts for June, the U.S pricing gauge, rose 23 cents to $72.58 per barrel. 

Wall Street, however, is still expected to open modestly higher after Monday's China deal-led rally, with contracts tied to the Dow Jones Industrial Average pointing to a 36 point gain for the benchmark at the opening bell. S%P 500 futures, meanwhile, are implying a gain of around 2.6 points to start the trading day. 

European stocks were also mixed at the start of Tuesday's session as investors continued to focus on the political horse-trading in Italy, where President Sergio Mattarella is considering the appointment of a new Prime Minister -- Giuseppe Conte -- to lead the Five Star/Liga coalition government. 

The radical left and anti-established right parties, however, continue to push their tax cutting and public spending agenda, a plan which economists and ratings agencies will both balloon the country's deficit and added to its already staggering E2 trillion debt pile.

Investors have reacted by slamming Italian stocks, sending the benchmark FTSE MIB to a six week low in yesterday's session and pushing 10-year government bond yields some 50 basis points higher over the past week to a 14-month high of 2.41%. Both markets were stronger today, however, with the FTSE MIB rising 0.7% and benchmark 10-year bond yields slipping 9 basis points to 2.32%.

The concern has also sapped demand for the euro, which is holding at a multi-month low of 1.1775 against the U.S. dollar amid both concern for the fiscal fate of Italy -- the region's third largest economy -- and slowing growth and inflation dynamics in the broader Eurozone. The Stoxx 600 index, the region's broadest measure of share prices, was marked 0.1% higher at 396.12 points, led by rebounds in Italy and Spain. 

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