Stocks, pound sink on Italy, UK, trade was worries

Stock markets slumped and the pound hit a fresh two-year low against the euro Friday as traders reacted to a sudden Italian political crisis, a British economic contraction and a new twist in the US-China trade war.

Equities have fallen for much of August amid lingering concerns of a global economic slowdown as Washington and Beijing continue to exchange trade blows.

US President Donald Trump raised the stakes again on Friday, saying he was not ready to finalise a trade deal with China and even indicating he might cancel talks scheduled in September.

“We’re not ready to make a deal but we’ll see what happens… We have all the cards. We’re doing well,” Trump told reporters at the White House before heading out on vacation at his New Jersey golf resort.

Analyst David Madden at trading firm CMC Markets UK said: “Beijing won’t like the latest development, so the uncertainty is likely to spill over into next week.”

Wall Street shares dove after the announcement, as did European markets, which were already headed downward over Italian political ructions and data showing the UK’s Brexit-facing economy is on the brink of recession.

“Political uncertainty in Italy has rocked stock markets around Europe,” Madden said.

Milan’s stock market closed down more than two percent after Italy’s far- right Deputy Prime Minister Matteo Salvini pulled his support for the country’s coalition government on Thursday and called for snap elections.

The heightened political tensions in the heavily-indebted country — the eurozone’s third largest economy — also caused yields to rise on Italian government bonds.

In currency trading, the pound’s woes helped propel the euro to a two-year high at 92.86 pence.

Adding to Britain’s economic troubles, official data released Friday showed the country’s gross domestic product (GDP) fell 0.2 percent in the second quarter, the first time it has contracted in almost seven years.

Another decline in the third quarter would put Britain in recession ahead of the nation’s expected withdrawal from the EU on October 31.

“All in all, today’s disappointing GDP figure is set to raise alarm bells over Brexit dragging the UK economy deeper into the abyss,” said Lukman Otunuga, senior research analyst at FXTM.

Elsewhere, Frankfurt’s DAX 30 index sank 1.3 percent after data showed German exports in June were eight percent lower than a year earlier, the country’s latest weak economic indicator.

In Asia, stock markets largely reversed early gains from a bargain-hunting push as investors remained wary about the US-China trade war.

It was a volatile week for markets, with equities hammered on Monday after Beijing allowed the yuan to slide against the dollar following Trump’s announcement of fresh tariffs on Chinese goods starting September 1. Oil prices surged on Friday, boosted by reports that Saudi Arabia was trying to get fellow OPEC members to bolster prices.

Uber shares tumbled after it reported a bigger-than-expected $5.2 billion loss in the second quarter, exacerbating worries about the ride-hailing company’s long-term path to profitability.