European stocks traded higher Monday trading, while U.S. equity futures were marked sharply to the downside as investors grappled with an impending global trade war, rising government bond yields and political instability in the region's third-largest economy.
Europe's Stoxx 600 benchmark, the region's broadest measure of share prices was marked 0.22% higher from Friday's close in early trading even as investors clipped prices for German automakers following a weekend Tweet from President Donald Trump that suggested they could be his next trade tariff target.
Germany's DAX performance index was little-changed at 11,922.56 in the open two hours of trading as gains were held down by big declines for Volkswagen AG (VLKAY) , which fell 1.25% to €157.7, rival Daimler AG (DMLRY) which slid 1.37% to €67.00 and BMW AG (BMWYY) slumped 2.12% to €82.90 each.
France's AXA SA (AXAHY) fell more than 6.3% in the opening hour of trading in Paris after Europe's second-largest insurance group said it had agreed to pay around $15 billion for Bermuda-based insurer XL Group in a cash and share deal that would create the world biggest property and casualty group.
Early indications from U.S. stock futures point to another rocky session on Wall Street, with contracts tied to the Dow Jones Industrial Average marked 80 points lower from Friday's close, indicating an opening bell decline of 40 points and those linked to the broader S&P 500 priced 13.75 points to the downside amid concern over a potentially growth-damaging trade war between the United States and its various commercial and economic partners.
We are on the losing side of almost all trade deals. Our friends and enemies have taken advantage of the U.S. for many years. Our Steel and Aluminum industries are dead. Sorry, it's time for a change! MAKE AMERICA GREAT AGAIN!— Donald J. Trump (@realDonaldTrump) March 5, 2018
Stocks in Asia reflected such a concern, with Japan's Nikkei 225 benchmark falling 0.66% to close at an October 2017 low of 21,049.99 points as the broader MSCI Asia ex-Japan index slumped 1.16% to head to the end of the session at 564.45 points as investors reacted to Trump's suggestion that he plans to slap a 25% levy on steel imports late last week.
European markets were also focused on political developments in Italy and Germany, with the former holding national elections that failed to deliver a decisive victory for any of the country's major parties, setting up weeks of horse-trading between various center-right and center-left factions that could ultimately lead to a fresh poll later in the year.
Stocks in Italy, however, opened weaker, with the benchmark FTSE MIB falling 1.33% to a six-month low after an indecisive result from Sunday's national elections that could spark an extended political sclerosis in Europe's third-largest economy.
"Political risk is back roaring," said Antoine Lesné, head of EMEA strategy and research for SPDR ETFs at State Street. "Italy was always going to be the country where some of the Eurozone construction issues would be the most acute."
"Despite the recent toning down of anti-euro rhetoric, this is a blow to the strong consensus that the common currency has been enjoying of late," he added. "It may still be too soon to expand into another full blown Eurozone crisis and the market will have to analyse the impact of this election on actual reforms."
In Germany, however, members of the centre-left Social Democratic Party voted to join a coalition government with their rival Christian Democrats of the centre-right. The move paves the way for Merkel's fourth term as Chancellor and allows for a major push on big constitutional and structural changes table by France's President, Emmanuel Macron.