Wall Street follows Italy higher after breakthrough in last-ditch attempts to form government 

Stocks are closing solidly higher on Wall Street, led by gains in banks, technology and energy companies.

Banks rose along with bond yields Wednesday after sustaining big losses a day ago. JPMorgan Chase rose 2.3 percent.

Investors were relieved by signs that Italy might have not hold new elections after all. Global markets had stumbled the day before on worries over the possibility of new elections that could become a referendum on Europe's third-largest economy leaving the euro.

The S&P 500 index rose 34 points, or 1.3 percent, to 2,724.

The Dow Jones industrial average rose 306 points, or 1.3 percent, to 24,667. The Nasdaq composite climbed 65 points, or 0.9 percent, to 7,462.

The yield on the 10-year Treasury note rose to 2.84 percent.

JJ Kinahan, chief market strategist for TD Ameritrade, said the market often reacts irregularly to political events like the uncertainty in Italy or tensions between the US and North Korea: stocks often fall fast and then recover in quick fashion. That process can sometimes repeat itself weeks or months later.

If there's no follow-up news, they tend to come back near where they started," he said. "I wouldn't count on it being done for the summer."

One asset manager which hasn't been put off doing business in Italy despite ongoing uncertainty is Blackstone Group, according to its president and chief operating officer Jon Gray.

Speaking at a conference earlier today, Mr Gray said: "We tend to focus more on long-term value than short-term market movements.”

“If you look back after Brexit, in our real estate business, we bought a couple of hundred million of pounds of warehouses. It was literally 10 days after Brexit."

Fears for the stability of the Italian financial sector following a debt sell-off have been added to by credit ratings agency Moody’s, after it placed 12 Italian banks and six Italian utilities’ companies on review for a downgrade.

The move comes after it warned last week that such a review was also taking place on Italian sovereign debt.

Moody’s said that a downgrade to Italian treasuries, which are currently two notches above so-called junk status at Baa2, would have a knock-on effect on banks’ deposit ratings. Banks’ ratings were therefore “aligned” with that of Italian government bonds.

This is because Moody’s rules for a country's banks’ ratings mean they are limited to only two notches above the sovereign bond rating. If Italian treasuries are downgraded, banks will also face seeing their rating fall. Those Italian banks under review presently hold an A3 rating, four notches above junk, within the investment grade tier.

A similar logic has been applied to utilities companies ratings.

Read Anna Isaac's piece in full here. 

US stocks rose this evening, with a surge in energy stocks helping Wall Street recover from a steep selloff in the previous session that was driven by political turmoil in Italy, writes Reuters. 

Hopes that Italy might avoid a potentially damaging general election set the markets off to a strong start on Wednesday.

At the session's peak, the S&P 500 erased all its losses from Tuesday on news that Italy's Five Star Movement party called for eurosceptic economist Paola Savona to withdraw his candidacy as economy minister to the possible formation of a government.

"The extent that it sold off was probably a little too much. So a little bit of a bounce back is not that big a surprise," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

The Dow Jones was up 315 points at 24,677 in afternoon trading, while the S&P 500 was 37 points higher at 2,727.

While US stocks pushed higher in afternoon trading, Bitcoin dipped below its average for the past year, as pressure continued to mount from regulators and the hype surrounding the digital currency dimmed. 

It comes a week after it emerged that Britain's financial watchdog has launched enquiries into 24 cryptocurrency firms to determine whether to take action to protect consumers.

The Financial Conduct Authority revealed it was reviewing the activities of the "unauthorised" businesses in its response to a freedom of information request, although did not disclose which companies those were or when those enquiries were opened. 

According to Market Securities Dubai's Paul Day, Bitcoin could continue to slide over the year, and its price could be as low as $2,800 by the end of the year.

It is wrong to argue that by vetoing the appointment of a eurosceptic finance minister President Mattarella was acting beyond the remit of his office and should be impeached, writes Matthew Goodwin. He was reportedly open to considering alternatives.

Mattarella was mainly concerned about an attempt by the populists to pull Italy out of the euro single currency through the back door, after a campaign of mixed messages (neither Five Star nor the League publicly advocated leaving the euro), and which would have hit Italian savers and potentially derailed not only Italy but the entire eurozone.

But it would also be wrong to view the crisis solely through the lens of Italian politics. To many, it is a powerful reminder of a fundamental and irreconcilable tension that lies at the heart of the eurozone.

Read the full piece here. 

The Italian president  Sergio Mattarella and the PM-designate Carlo Cottarelli have been holding meetings today and have agreed 'not to rush the situation' to see is a political government can be formed, according to Reuters. 

Wall Street stocks climbed as concerns over the Italian political environment eased. The Dow Jones and S&P 500 followed the FTSE MIB higher on the news that Italy’s Five Star Movement had called for Paolo Savona to withdraw his candidacy for finance minister.

Savona had been chosen by the anti-establishment Five Star Movement and the hard-Right, euro-sceptic League for the economy minister post, but his appointment was blocked by the Italian president, causing the efforts to form a government to collapse.

Five Star Movement leader Luigi Di Maio has called on Paolo Savona to withdraw his candidacy for finance minister, a move that could resolve the political impasse gripping Italy.

President Sergio Mattarella refused to allow a government to be formed with arch-Eurosceptic Savona in the key role. Five Star calling for Mr Savona to withdraw his candidacy could be a key roadblock removed in the populist coalition's path to government.  

The news dropped just before markets closed in Europe with hopes that the concession could end the political turmoil in Italy helping the FTSE MIB surge to a 2.1 gain in late trading. 

An eerie quiet has descended on European markets ahead of the end of trading as investors await the outcome of attempts at forming a new government in Italy.

This morning's volatility on Italian markets has subsided and the FTSE MIB is on course to snap a five-day losing streak to climb 1.2pc.

Since the populist parties first agreed on a coalition programme two weeks ago, Milan's blue-chip index has tumbled as much as 10pc but is still one of Europe's best performing indices in 2018.

RBC Global Asset Management's Eric Lascelles believes that Italy will not exit the eurozone but warned that "another election is now fairly likely and voters seem distinctly tempted to vote in the same populist parties".

Easing concerns over the turmoil in Italy has brightened the mood on Wall Street this afternoon.

The Dow Jones index, which tumbled 1.6pc yesterday as fears of a second Italy vote rattled markets, has regained 0.7pc at the opening bell in New York this afternoon.

As investors await the outcome of efforts to form a government in Rome, markets across in Europe have stabilised despite the looming threat of a new election.

Fears of unsustainable levels of public debt and the populist parties' threat to Italy's euro membership will be under the spotlight on financial markets in the coming weeks, according to Silvia Dall’Angelo at Hermes.

She added that the it is unlikely the Five Star and the League "will harp on against the single currency" given that it still "enjoys the support by a majority of the public opinion".

Reports this afternoon from Reuters have indicated that the European Central Bank will not intervene in the political crisis in Italy.

The news agency claimed that sources within the central bank said that the ECB warned that it does not have the mandate to resolve the political impasse.

The boss of bank note printer De La Rue has defended his short-lived battle with the UK Government over its decision not to renew its contract to print British passports.

Martin Sutherland, chief executive, said he had “no regrets” about his fiery response to losing the deal for UK passports, which De La Rue will continue to print until the middle of 2019.

“It has not harmed my position and all my conversations with investors are supportive,” he added. “We have a good strategy and are delivering solid results.”

Read Alan Tovey's full report here

After sinking 1.6pc on the political turmoil in Italy and fresh trade war worries, the Dow Jones in New York is expected to make a modest rebound on opening this afternoon.

Stronger than anticipated demand in an Italian government bond auction this morning has eased fears that investors are shunning the country's assets.

Seema Shah at Principal Global Investors said the auction "indicates that investors still have faith in the Italian economy".

She added that despite the political turmoil, Italy's "is enjoying a much improved economic and fiscal position".

Italy has not had an elected prime minister since 2011, with Il Cavaliere Silvio Berlusconi followed by four unelected premiers in a row. A fifth is now on its way after a presidential veto scuppered Five Star's plans to form an anti-establishment government with the anti-migrant League, and it's no wonder the establishment prefers him.

Carlo Cottarelli made his name at the International Monetary Fund. The verve he had for cutting public spending was so well-known that he was dubbed "Mr Scissors". When he was appointed by Enrico Letta (one of the unelected prime ministerial quartet) to get his books in order, he was anointed "Mr Spending Review".

Read Asa Bennett's full comment here

Italian markets are fluctuating on every twist and turn in Rome's political saga but appear to have decided that this morning's events have been a positive development for investors.

The picture emerging from Italy is far from clear, however. 

Carlo Cottarelli, the former IMF economist chosen  by president Sergio Mattarella to lead the country until new elections, could reportedly form a government made up of politicians (i.e. members of Five Star Movement and the League).

However, the League reportedly wants to stick by their Eurosceptic pick of finance minister who was blocked by the president and Five Star are warning that they will only support an administration with Giuseppe Conte at the helm. 

Nonetheless, the FTSE MIB has rallied 1.5pc while relative calm has descended on bond markets with the spread between Italian and German 10-year yields, a key indicator of risk in the Southern European country, slipping back 10pc. 

Royal Bank of Scotland's chief financial officer has resigned ahead of the bank's annual general meeting on Wednesday, in which executives are expected to be grilled by investors over dividends, branch closures and re-privatisation.

Ewen Stevenson will leave the state-controlled bank to "take up an opportunity elsewhere", remaining in his position until a successor is found.

RBS chief Ross McEwan, who himself has faced fevered speculation that he could soon leave the bank, said Mr Stevenson had been "fantastic" and had helped to resolve "a number of major legacy challenges" over his four-year term.

Read the full report here

Amid the threat of a global trade war, populists seizing power in the eurozone and fluctuating tensions between the US and North Korea, "perennial uncertainty" has been the key theme on markets in 2018, according to ING.

The uncertainty in Italy is causing the FTSE MIB to dip in and out of negative territory this morning.

Milan's blue-chip index has now swung back to a 0.6pc gain on reports that the League will not block an emergency political solution but still wants elections as soon as possible.

It is little wonder that the far-right League is pushing for fresh elections to end the political gridlock in Rome.

An IPSOS poll for the Corriere della Sera newspaper shows that its support has surged since Italy's election in March.

The poll puts the League's coalition partner, Five Star Movement, in front with 32.6pc of the vote with the far-right party jumping 8 percentage points to 25.4pc. A new vote would undoubtedly strengthen the grip of the populist parties on Italy's parliament and provide them a mandate to implement their radical programme.

It is going to be a long, hot summer in Italy. With efforts to form a populist government breaking down amid acrimony and recriminations on Sunday, the country is likely heading for fresh elections in September or October.

Long-suffering Italians, who had thought that a new government consisting of the Five Star Movement and The League was on the cusp of being announced after more than 80 days of post-election deadlock, now face months more of electoral campaigning.

Read the full report by Nick Squires here

The rally on European markets has been curbed by the League's leader, Matteo Salvini, pushing for snap elections "as soon as possible".

The far-right party's leader told reporters that that the "earlier we vote the better because it's the best way to get out of this quagmire and confusion".

The FTSE MIB in Milan has eased back to a 0.6pc gain but the euro has held its 0.5pc rebound against the dollar on currency markets.

The latest political crisis to engulf Europe, this time coming in Italy, was triggered when the country’s President, Sergio Mattarella, refused to sign off on a new government that had been proposed by two populist parties, and which included an openly Eurosceptic finance minister.

In place of the coalition government, which would have comprised the populist Five Star movement and the hard-Right League, both of which had voiced a desire to reform the Eurozone, the President appointed a caretaker Prime Minister, Carlo Cottarelli, who happens to be a former International Monetary Fund (IMF) official.

Cottarelli is very unlikely to win a vote of confidence and so Italy looks set for fresh elections in the autumn. The first poll conducted in the shadow of the crisis put Five Star and the League on a combined 57 per cent of the vote. You don’t need to be an opinion poll wizard to see where this election is headed.

Read Matthew Goodwin's full analysis here

Despite those reports claiming that Five Star Movement and the League are holding talks to make a renewed attempt to form a coalition government, the latter's leader, Matteo Salvini, has called for new elections "as soon as possible" in the last few moments.

Markets are taking the very confusing picture emerging from Rome in their stride this morning.

The FTSE MIB has built on its early gains to climb 1.1pc while Italian debt costs continue to fall with the two-year bond yield dropping 82 basis points, cutting yesterday's surge in half.

Italy's populist insurgents Five Star Movement and the League are reportedly making renewed efforts to form a coalition government.

After President Sergio Mattarella blocked the new government on its Eurosceptic pick for the key role of finance minister, Reuters is reporting this morning that the parties are trying to find a "point of compromise on another name" for the position.

The news agency added that the coalition could be widened to include the Brothers of Italy, another right-wing party. 

Milan's FTSE MIB, Italy's benchmark stock index, has snapped a five-day losing streak but the tentative gains made in early trading on European markets are beginning to ease slightly.

It feels "like it's time to dust off the euro-are crisis playbook" but there are some "important differences compared with the earlier crisis period", according to Nomura.

It explained:

"Italy has flipped from a current account deficit to a surplus since 2013, suggesting the country has excess savings, rather than excess borrowing needs, a European crisis mechanism has been put into place, notably through an alphabet soup of programmes such as the PSPP, SMP, OMT, LTRO, ELA, and ESM and Italy has posted steady (albeit low) growth since 2014."

However, Normura added that the political backdrop in Europe and the US has become much more challenging.

European markets have stabilised this morning as the panic over Italy's political turmoil begins to ease.

Amid reports that Italy's prime minister designate Carlo Cottarelli is holding talks to pull together a government to temporarily fill the political vacuum in the country, Milan's blue-chip index, the FTSE MIB, rebounded 1.1pc while the euro rallied into positive territory.

After suffering its worst day in 25 years yesterday, short term Italian debt recovered with the Italy's two-year bond yield cooling 56 basis points away from a six-year high.

It is going to be a long, hot summer in Italy. With efforts to form a populist government breaking down amid acrimony and recriminations on Sunday, the country is likely heading for fresh elections in September or October.

 The FTSE 100, Italy's FTSE MIB and France's CAC index are expected to open lower this morning, but market watchers predicted German stocks could rise. Financial spread-betters predicted the FTSE 100 would open 5 points lower at 7,627, Frankfurt's DAX to open 5 points higher at 12,671 and Paris CAC to open down 3 points at 5,435.

Growing trade tensions could derail global economic growth, the Organisation for Economic Co-operation and Development has warned. 

The group said it expects the global economy to expand by 3.9pc next year, up from 3.8pc in 2018, and that unemployment was on track to fall to 5pc by the end of 2019, its lowest level since 1980. 

But Alvaro Pereira, an OECD economist warned: "In spite of all this good news, risks loom large for the global outlook. What are these risks? First and foremost, an escalation of trade tensions should be avoided."

Our economics correspondent Anna Isaac writes: Italy's political turmoil is invoking memories of the 2011 eurozone crisis and also raises questions about the future of the country, both within in the EU, and the currency union.

Markets have tumbled as the cost of Italy’s short-term borrowing rocketed and banks holding Italian sovereign debt nursed sharp falls in their share prices. The VIX-index - the so-called fear index for investors - leapt by 17pc hitting a peak not seen since the start of May. 

Both the European Central Bank and the Bank of Italy have warned of the dangers of a loss of trust in systems and institutions, and on Tuesday Italian short-term treasury bonds had their worst day since 1992.

Fresh Italian elections are now expected in the autumn, which is set to become a referendum on sovereignty, as polls show the eurosceptic League party gaining ground, offering the alarming possibility that the Eurozone’s third largest economy could decide to ditch the shared currency.

Read Anna's full article here