By Barbara Kollmeyer, MarketWatch
Italian stocks turned sharply lower on Monday, acting as a deadweight on other European markets as investors looked at the increasing possibility of new elections for Italy, while political uncertainty also swirled around Spain.
But investors may see thinner volumes than normal as London markets closed for a bank holiday and U.S. markets are shut in observance of Memorial Day.
What are markets doing?
The Stoxx Europe 600 Index /zigman2/quotes/210599654/delayed XX:SXXP +1.85% closed down 0.3% to 389.82. The index fell 0.9% last week, breaking an eight-week winning run that had been the longest positive stretch since June 2014.
In a turbulent session, Italy’s FTSE MIB index /zigman2/quotes/210598024/delayed IT:I945 +2.18% shed initial opening gains to drop 2.1% to 21,932.69. The index has been on a roller-coaster ride in recent sessions as two antiestablishment parties — 5 Star Movement and League — that recently decided to form a coalition after March elections have been attempting to form a government. The index tumbled 4.5% last week.
Spanish stocks also tripped by the afternoon, with the IBEX- 35 index /zigman2/quotes/210597995/delayed XX:IBEX +1.55% closing down 0.6% to 9,764.40 amid questions about the stability of the ruling government.
Following suit, Germany’s DAX 30 index /zigman2/quotes/210597999/delayed DX:DAX +1.79% fell 0.6% to 12,863.46, while France’s CAC 40 /zigman2/quotes/210597958/delayed FR:PX1 +2.41% shed 0.6% to 5,500.93. Portugal’s PSI 20 Index /zigman2/quotes/210598164/delayed PT:PSI20 -0.41% slid 1.7% to 5,513.76.
The euro /zigman2/quotes/210561242/realtime/sampled EURUSD +0.3421% turned lower against the dollar, dropping to $1.1626, from $1.1645 late Friday.
What is driving markets?
On Monday, Italian President Sergio Mattarella asked former International Monetary Fund official Carlo Cottarelli to try to form a new government. Paolo Savona, an 81-year-old economist and former industry minister who had been up for the post of economy minister has expressed views that the country will leave the euro.
The move came just hours after Mattarella blocked two antiestablishment parties from taking power by rejecting their euroskeptic candidate for economy minister. In response, the antiestablishment parties have now called for new elections — the last election was in March.
Concerns about the two parties vows to challenge the EU’s budget rules and slash taxes while increasing fiscal spending have driven up the cost of Italian debt recently.
Meanwhile, Spain remains on edge after the country’s main opposition party called for a vote of no confidence on Prime Minister Rajoy over a corruption case that ended in convictions for a former party treasurer and other senior members of the party. The vote is due to take place on Friday, with the debate beginning in parliament on Thursday.