Italian stocks fell Monday, lagging other European markets, as the country faced the prospect of a hung parliament after the country’s general election showed a surge in support for populist parties.
Meanwhile, the threat of U.S. tariffs on imported cars sent shares of German auto makers lower.
How markets are moving
Italy’s FTSE MIB I945, -0.59% fell 0.8% to 21,736.74, paring a loss of 2% at the start of trading. Germany’s DAX 30 index DAX, +0.86% was off 0.1% at 11,902.92, also paring its loss at the open. The DAX last week fell 4.6%.
France’s CAC 40 PX1, +0.41% was up 0.2% at 5,145.48, while the U.K.’s FTSE 100 UKX, +0.27% was up 0.4% at 7,099.13.
The pan-European Stoxx Europe 600 index SXXP, +0.66% moved up 0.3% to 368.21. Last week, the benchmark fell 3.7%.
The euro EURUSD, -0.1704% traded at $1.2288, down from $1.2321 late Friday in New York.
What’s driving markets
In Milan, the FTSE MIB fared the worst among European indexes after Sunday’s national elections produced an inclusive result, with populist parties doing surprisingly well and winning about half of the votes, according to initial projections. This likely means there will be a period of political instability for the third-largest economy in the eurozone.
Read: Italy election: No clear winner, aside from the power of populism
In Frankfurt, shares of auto makers were under pressure after U.S. President Donald Trump in tweet Saturday threatened to impose a tax on cars if EU retaliates to his planned tariffs on steel and aluminum imported into the U.S.
This comes after the European Union reportedly said it could impose a 25% levy on U.S. imports worth as much as $3.5 billion. The move would be in response to Trump’s plan this week to sign orders to impose tariffs of 25% on global steel imports and of 10% on aluminum imports. Trump said that move would provide “protection for a long time” for U.S. steelmakers.
But the political landscape in Germany has stabilized after Germany’s Social Democrats on Sunday agreed to join in a ruling coalition with Chancellor Angela Merkel’s conservatives. The vote by two-thirds of the Social Democrats paves the way for a Merkel to start her fourth term as leader of the largest economy in Europe.
Stock movers
German car makers were lower, with BMW AG BMW, -0.96% down 2.4%, Daimler AG DAI, -0.31% lost 1.3% and Volkswagen VOW3, +0.00% VLKAY, +0.32% gave up 0.7%.
In Milan, bank stocks lost ground. Banco BPM SpA BAMI, -4.25% slid 5%, BPER Banca SpA BPE, -5.22% dropped 4.4% and Intesa Sanpaolo SpA ISP, -1.45% moved 2.1% lower.
What strategists are saying
“Political risk is back roaring. Italy was always going to be the country where some of the eurozone construction issues would be the most acute. Despite the recent toning down of anti-euro rhetoric, this is a blow to the strong consensus that the common currency has been enjoying of late,” said Antoine Lesné, head of EMEA strategy at State Street, in a note.
“It may still be too soon to expand into another full blown eurozone crisis and the market will have to analyze the impact of this election on actual reforms. But the word is out and Italian treasury spreads ... will widen from current levels while euro strength could be halted until more clarity comes to light,” said Lesné.