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Euro losses build in Asia as Italy plunges into political crisis

02 June 2018

ITALIAN INSTABILITY: Investors feared the possibility of a financial crisis in Italy, the third largest economy in Europe, as well as the possibility that elections in the fall could become a referendum on Italy's use of the euro.

The S&P 500 index sank 31.47 points, or 1.2 percent, to 2,689.86.

The German DAX lost 1.5 percent and Britain's FTSE 100 and the French CAC 40 both sank 1.3 percent. Those companies depend on strong sales outside the U.S.

The euro might survive an Italian exit, but it would "put Italy, the euro area economy and the European Union in deep distress". Borrowing costs for Italy, as for other eurozone countries, are so low that it would take a much more drastic increase to endanger the Italian government's ability to borrow and repay its bonds as they come due.

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The new jitters about the stability of the euro sent the currency's value against the dollar to its lowest level in nearly a year.

Elsewhere shares in Deutsche Bank recovered some of the previous session's heavy losses, climbing 3.6 percent higher following Thursday's drop of more than 7 percent in the after a report that the U.S. Federal Reserve a year ago designated the bank's U.S. operations to be in "troubled condition".

That means that avoiding a new euro crisis largely hinges on the hope that Italy's populist politicians don't mean what they say and won't engage in budget-busting spending if they win a new election, expected as soon as September. The dollar rose to 108.24 yen from 109.37 yen. In recent weeks, the picture has changed: the euro has lost about 7 percent since mid-April and dropped to levels not seen in 10 months as attempts to form a government in Rome floundered, thrusting Europe into crisis once again.

Economists, including at the European Central Bank, have used the price of credit default swaps on government debt in euros and dollars to gauge whether investors were betting on a country leaving the euro zone. By mid-afternoon Asia time it was at 2.81 percent. Natural gas dropped 2.2 percent to $2.88 per 1,000 cubic feet.

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In the USA markets, financial services were hit the hardest with JPMorgan Chase down 4.2 percent, followed by Goldman Sachs down 3.4 percent and American Express down 3.3 percent in late-day trading. Most Southeast Asian markets were closed for holidays.

The yield on the 10-year Treasury is one of the most closely watched financial measures in the world, along with the price of oil, gold and the US dollar.

TREASURIES: U.S. government bond prices jumped as investors moved money into lower-risk assets.

ENERGY: U.S. crude oil fell 25 cents to $66.50 per barrel in electronic trading on the New York Mercantile Exchange. Oil prices have slumped in the last week following reports that OPEC countries and Russian Federation could start pumping more oil soon. Hong Kong's Hang Seng index plunged 1 percent to 30,484.58. Brent crude, used to price global oils, dropped 40 cents to $77.16 per barrel.

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Some €6.4bn worth of European Union exports are expected to be affected by the USA tariffs . The U.S. produced 785,000 metric tons of aluminum and imported 5 million tons a year ago .

Euro losses build in Asia as Italy plunges into political crisis