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Stocks Advance and Bonds Slide as Italy Concerns Fade

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(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 U.S. 10-year yields held above 2.82 percent, boosting financial shares that had sold off on Tuesday as worries about Italy leaving the euro spread. West Texas crude advanced, lifting energy companies. The greenback declined the most in nearly three weeks.

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, 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. Still, 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 U.A.E. 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.

Terminal users can read more in Bloomberg’s Markets Live blog.

These are some key events to watch this week:

  • EU trade chief Cecilia Malmstrom and U.S. Commerce Secretary Wilbur Ross are scheduled to meet Wednesday in an informal World Trade Organization ministerial in Paris.
  • The U.S. employment report for May is due Friday. It’s the last before the June Fed meeting.
  • Automakers report May U.S. sales the same day.
  • Also Friday: some onshore Chinese stocks join MSCI Inc.’s global indexes.
  • On Saturday U.S. Secretary of Commerce Wilbur Ross will travel to Beijing for more talks with Vice Premier Liu He on topics including ZTE Corp. and trade.

These are the main moves in markets:

Stocks

  • The S&P 500 Index rose 0.6 percent as of 10:30 a.m. New York time.
  • The Stoxx Europe 600 Index was little changed.
  • The U.K.’s FTSE 100 Index increased 0.2 percent.
  • Germany’s DAX Index advanced 0.4 percent.
  • The MSCI Emerging Market Index sank 1.4 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.

Currencies

  • The Bloomberg Dollar Spot Index fell 0.4 percent, the largest decrease in almost three weeks.
  • The euro climbed 0.6 percent to $1.1606.
  • The British pound advanced 0.3 percent to $1.3288.
  • The Japanese yen dipped 0.1 percent to 108.90 per dollar.
  • The Turkish lira jumped 1.2 percent to 4.4918 per dollar, the strongest in almost two weeks.

Bonds

  • The yield on 10-year Treasuries gained five basis points to 2.83 percent.
  • Germany’s 10-year yield rose seven basis points to 0.33 percent.
  • Britain’s 10-year yield gained three basis points to 1.224 percent.
  • Italy’s 10-year yield sank 12 basis points to 3.048 percent.

Commodities

  • West Texas Intermediate crude gained 1.2 percent to $67.53 a barrel, the first advance in more than a week.
  • Gold increased 0.2 percent to $1,302.02 an ounce.

–With assistance from Andreea Papuc and Cecile Vannucci.

To contact the reporters on this story: Samuel Potter in London at spotter33@bloomberg.net;Randall Jensen in New York at rjensen18@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Yakob Peterseil

©2018 Bloomberg L.P.

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