European Markets Bounce Back from Renzi-Sparked Losses
European stocks and the euro rebounded sharply Monday as investors were reassured by the speed of Italian Prime Minister Matteo Renzi's resignation after losing a crunch referendum.
The region's markets began the day in negative territory, with Milan tumbling two percent, but recovered somewhat with sentiment soothed also by the defeat of the far right in Austria's presidential election.
"The Italian referendum is the major story that will dominate market moves throughout Monday... after Renzi left his position after a bruising defeat," said GKFX analyst James Hughes.
"The initial market reaction was to the downside, but Renzi's decision to leave so quickly after the result meant that added clarity drove the euro and European equity markets to the upside."
Renzi stood by his promise to resign after his attempt to change the constitution was overwhelmingly rejected in Sunday's poll, leading to fears about the future of one of the eurozone's biggest economies.
The referendum verdict sent the European single currency crashing to $1.0506 -- the lowest level since mid-March 2015 -- before bouncing back over $1.07.
Equities also staged a recovery. Frankfurt won 1.3 percent, Paris gained 0.6 percent and London added 0.1 percent, reversing initial losses.
"European markets have been surprisingly resilient... as initial fears of another eurozone crisis have been largely brushed aside," said IG analyst Joshua Mahony.
"Sharp depreciation in the euro and European indices have been swiftly reversed, bearing more than a passing resemblance to the UK referendum and U.S. election results."
- 'Judgment call' -
Populists in Italy and throughout Europe rejoiced at Renzi's downfall, in the wake of anti-establishment poll shocks in both Britain and the United States.
"This referendum was seen more as a judgment call on Renzi's premiership than the reforms on offer; by rejecting the PM, Italy has displayed the same kind of anti-establishment populist sentiment that has defined 2016 for the UK and U.S.," said Spreadex analyst Connor Campbell.
He also cautioned it presented another blow to Italy's fragile banking sector.
Last month Donald Trump won the U.S. presidential election, while Britain voted in June to leave the European Union.
Investors were comforted somewhat after Austria's anti-immigration and euro-skeptic Norbert Hofer was defeated in his bid to become the EU's first far-right president over the weekend.
Greens-backed independent candidate Alexander Van der Bellen swept to victory on Sunday.
"The defeat of the far-right Norbert Hofer by Alexander Van der Bellen in Austria provided a chink of light for the euro, preventing its more excessive losses from sticking around for too long," noted Campbell.
- Italian bond yield climbs -
Italy's referendum result also sent the yield on Italy's 10-year government bonds jumping to 2.059 percent -- the highest since Thursday -- from 1.902 percent Friday.
Analysts remain concerned that political instability could scupper Italy's efforts to resolve a bad loans crisis in the banking sector and spark fresh eurozone turmoil.
"Italy has taken the first step along a path that could lead it out of the eurozone," cautioned economist Jack Allen at London-based research firm Capital Economics.
"There are still many obstacles to an Italian exit. But as long as the country's future is uncertain, bond yields are likely to rise and the government might need to recapitalize some of the weaker banks."
The worry over defaults and contagion looms in the background, with Italian banking stocks having halved in value this year.
"Fears over the future for Italian banks will persist, with recapitalization plans thrown into doubt after Renzi's exit," added Mahony.
"However, this morning's recovery is a clear sign that market perception is that despite causing uncertainty, this result is unlikely to spark a major crisis for the banks."
Gains by petroleum-linked equities helped push U.S. stocks higher early Monday as investors shrugged off an Italian referendum that adds uncertainty to eurozone politics.
- Key figures around 1430 GMT -
London - FTSE 100: UP 0.1 percent at 6,739.67 points
Frankfurt - DAX 30: UP 1.3 percent at 10,648.45
Paris - CAC 40: UP 0.6 percent at 4,555.78
Milan - FTSE MIB: DOWN 1.2 percent at 16,887.12
EURO STOXX 50: UP 0.8 percent at 3,037.68
Tokyo - Nikkei 225: DOWN 0.8 percent at 18,274.99 (close)
Hong Kong - Hang Seng: DOWN 0.3 percent at 22505.55 (close)
Shanghai - Composite: DOWN 1.2 percent at 3,204.71 (close)
New York - Dow: 0.4 percent at 19,246.39
New York - S&P 500: 0.4 percent at 2,200.66
New York - Nasdaq: 0.4 percent at 5,276.02
Euro/dollar: UP at $1.0718 from $1.0669 Friday
Dollar/yen: UP at 114.26 yen from 113.53 yen
Pound/dollar: FLAT at $1.2727
Oil - Brent North Sea: UP 49 cents at $54.95 per barrel
Oil - West Texas Intermediate: UP 45 cents at $52.13
Source: Agence France Presse
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