The post-Brexit recovery across European markets sputtered to a halt yesterday with major equity indices lower and safe-haven demand for precious metals helping the price of silver surge to near a two-year high.
Financial and commodities markets in the United States were closed for the July 4 public holiday. US stock futures were up 0.1 per cent in low volumes.
Europe’s Stoxx 600 fell 0.7 per cent and London’s FTSE 100 fell 0.9 per cent dragged lower by weaker financials and homebuilders’ shares.
Earlier in the day, the Australian dollar recovered from a wobbly start caused by political uncertainty post-election while Asian shares and base metal prices rose, partly on expectations of economic stimulus from China.
JPMorgan strategists warned investors against chasing the rally in risky assets.
Caution is likely to persist through the week with the Bank of England scheduled to publish its quarterly financial stability report on Tuesday, the June US Federal Reserve meeting minutes due on Wednesday and US jobs data on Friday.
In bond markets, worries about the health of Italian banks and some €20 billion of bond supply in the region this week combined to halt a post-Brexit tumble in regional borrowing costs.
Italian banking index fell more than 3.5 per cent yesterday, while the European Central Bank asked Italy’s Banca Monte dei Paschi di Siena to slash its bad debts by 40 per cent over three years, heaping more pressure on Rome and Brussels to stabilise the Italian banking system.
Italy is in talks with the European Commission on devising a plan to recapitalise Italian lenders with public money limiting losses for bank investors, an EU spokeswoman said on Sunday.
Fears of an economic slowdown in the Britain have taken a toll on shares of smaller domestically focused companies, which have significantly underperformed export-oriented bluechips. This continued on Monday with the FTSE midcaps index off more than two per cent.
Sterling came under pressure following poor data that showed Britain’s construction sector PMI survey suffered its worst contraction in seven years in the run up to the vote to leave the EU.
The currency recovered some ground in late trading, rising 0.1 per cent to $1.3284, still nursing its losses after an 11-per cent plunge to a 31-year trough of $1.3122 a week ago following last month’s shock Brexit vote.
The euro was little changed at $1.1140 and was down slightly against its Japanese counterpart at 114.27 yen.
Crude oil prices extended gains from Friday’s surge after comments by the Saudi energy minister that the oil market is heading towards balance despite signs of slowing demand in Asia.
Spot gold added 0.7 per cent to $1,352.10 an ounce after gaining 1.5 per cent on Friday and about 9 per cent in June.