The Dow (DJIA) has recently plummeted, decreasing on more than 392 points (1.6%), after recent fears surrounding the Italy’s political landscape and increasing tensions in the U.S.-China “trade war”.
After recent conflicts between populist parties and president Mattarella, and the presented request for his resignation, Italy is heading towards elections, just a couple of months after its General Election in March 8th. This have brought concerns to investors, speculating whether or not Italy’s state will affect the European Union in a broader context. They have reportedly asked for higher yield returns, since they are investing in a country that is currently in political and economic instability.
U.S. markets and Wall Street finance analysts have shared the country’s tension and have speculated that, in the worst-case scenario, Italy would have to leave the Eurozone. This, taking into account that it is one of Europe’s five largest economies, could bring major changes to the E.U. and the euro as a currency. Economists and finance experts had shown their skepticism towards the formation of a populist government administrating Italy. This has been one of the main objectives of the country’s major political parties coming into the next elections. If they were to succeed, spending for the country would raise and it’s debt, which is already more than 130% of the country’s income, would increase.
Among other measures, the U.S. has also put a baffling 25% tariff on 50$ million worth of Chinese goods, which has also caused controversy in Wall Street. The procedure had been discussed and scheduled to be implemented in the future.
However, it came in an unexpected manner. Previously, Chinese Vice Premier Liu He, the top economic advisor to President Xi Jinping, had come to Washington with a delegation to discuss the economic tension between the two countries. After meeting with U.S. officials, it was stated that China would increase purchases of US goods and services to reduce their trade imbalance, the latter being a highly requested measure by the Trump administration. Merely ten days ago, the so-called “trade war with China” had been put on hold by Treasury Secretary Steven Mnuchin. Furthermore, Commerce Secretary Wilbur Ross was sent to Beijing on Saturday in order to ease the U.S.-China tensions.
On a public statement, the White House explained that “The United States will implement specific investment restrictions and enhanced export controls for Chinese persons and entities related to the acquisition of industrially significant technology.” On June 15th, a list of exports covered with this tariff will be released, and investment restrictions are set to be announced on June 30th.
Releasing a statement, the Chinese Commerce Ministry stated:
We were both surprised by and expecting the statement issued by the White House. This statement is obviously in violation of the consensus reached in Washington recently by both China and the United States. Regardless of what measures the US launches, China has the confidence, capability and experience in safeguarding the interests of the Chinese people and its core national interests. China urges the US to move in the direction of the spirit of the joint communique.”
Wall Street’s “fear gauge”, the VIX, has significantly raised in the face of recent events, going at the highest it has been since early May. Yields for the 10-year U.S. Treasury have fallen to 2.77%, which raises concern since yields move in opposite ways than prices. As yields fell all across Wall Street, investors moved towards higher-dividend stocks, such as real estate. Concerns were also raised after oil prices have shown themselves quite unstable and dynamic recently. Prices reached a peak high last week, the highest they have been in three years, while trade oil futures have dropped almost 10% this week.
