After the performance of European and North American markets on Tuesday, Wednesday was never going to be a particularly pleasant session for Asian investors in the absence of some unexpected positive news out of Italy.
Unfortunately, good news is in short supply so far, meaning risk assets across the region are getting pummeled.
Starting with stocks, all bar those in New Zealand are deep in the red. S&P 500 futures are also pointing lower, suggesting that the steep falls seen yesterday may continue today.
Australia ASX 200 5973.80 , -0.66%
NZ NZX 50 8649.92 , 0.16%
Japan TOPIX 1733.35 , -1.62%
Shanghai Comp 3053.68 , -2.14%
Shenzhen Comp 1752.91 , -1.89%
HK Hang Seng 30017.56 , -1.53%
Sth Korea KOSPI 2406.80 , -2.05%
Sinagpore STI 3438.42 , -2.28%
Taiwan TAIEX 10810.68 , -1.40%
Philippines PSI 7530.57 , -0.94%
Indonesia JKSE 6041.83 , -0.44%
Malaysia KLCI Index 1737.82 , -2.14%
S&P 500 Futures 2687.25 , -0.19%
The US dollar is also gaining ground against most Asian currencies, as is the Japanese yen, benefiting from safe-haven flows out of both G10 and emerging markets.
AUD/USD 0.7489 , -0.20%
NZD/USD 0.6903 , 0.01%
USD/JPY 108.56 , -0.17%
USD/CNY 6.4266 , 0.16%
USD/CNH 6.4258 , 0.05%
USD/HKD 7.8456 , 0.00%
USD/KRW 1081 , -0.25%
USD/SGD 1.3453 , -0.03%
USD/TWD 30.05 , -0.02%
USD/PHP 52.72 , 0.13%
USD/MYR 3.993 , 0.33%
USD/IDR 14032 , 0.34%
USD/THB 32.13 , 0.16%
USD/INR 67.83 , 0.65%
US Dollar Index 94.96 , 0.13%
Gold is up smalls as safe-haven buying is mitigated by US dollar strength while Brent crude futures are trading down 0.5%.
Brent Crude $74.90 , -0.65%
Gold $1,299.10 , 0.09%
Silver $16.38 , -0.04%
Australian and Japanese 10-year bonds are also being helped by the modest lift in risk aversion, although yields on 10-year US bonds are climbing off the mat after tumbling on Tuesday.
United States 2.819% , 0.051%
Japan 0.021% , -0.011%
Australia 2.643% , -0.077%
Of course, all of the moves in Asia are linked to increased political uncertainty in Italy, something that saw investors take a sledgehammer to Italian stocks and bonds, as well as the euro overnight.
It all looks very reminiscent to periods during the European debt crisis, with assets in the region’s periphery outperforming those in the core nations such as Germany and France by a significant margin.
For those looking for the back-story as to how Italian politics has been thrust back into the limelight, BI’s Will Martin has the answers in this excellent note.
However, while markets are speculating about all the negative outcomes that fresh Italian elections – if held – could bring, not everyone is convinced that an Armageddon-type scenario will play out.
“We now have to think about what the reaction of the players is going to be to the markets turmoil,” says Greg McKenna, chief market strategist at AxiTrader, referring to policymakers both within Italy and across Europe.
“My sense is we might see some backtracking.
“On Tuesday we saw 5-Star leader Luigi Di Maio say that his party never sought a Euro exit and he’s said he’s no longer seeking President Mattarella’s impeachment.
“And there is now talk that the 5-Star movement and Lega Nord will again try to cobble together a government.”
The escalation in market jitters started when Italy’s President Sergio Mattarella vetoed the appointment of Paolo Savona, a eurosceptic economist and former banker, as the new government’s finance minister.
Should the 5-Star movement and Lega Nord decide to make an alternative nomination for finance minister, the mood across markets could change as quickly as it deteriorated.
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