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Bloomberg.com — Government bond markets showed signs of stabilization Wednesday after an epic rout in Italian debt triggered haven flows that saw U.S. Treasury yields tumbling. U.S. stock futures edged higher, while Asian equities tumbled in their catch-up with the previous day’s turmoil.

Ten-year Treasury yields climbed back above 2.80 percent after sliding 15 basis points Tuesday. Financial shares led the MSCI Asia Pacific Index lower as the Italian political impasse reminded investors of the European debt crisis and its knock-on effects across global banking. The regional gauge is heading for its lowest close since February. The euro remains less than half a cent from its weakest since last July.

While the prospect of snap Italian elections that effectively become a referendum on the nation’s inclusion in the euro zone has roiled markets, at least some are seeing an easing in the rout. One fund closing out positions has been Western Asset Management Co., which had made short bets on the debt of the euro region’s No. 3 economy last week.

“Ultimately we think Italy stays in the club,” said Gordon Brown, London-based co-head of global portfolios at Western Asset, which manages $431 billion in assets. “Yields will settle down at a more reasonable level, but one that reflects ongoing political risk premium.”

Here’s a Roundup of Italian Political Turmoil and its Impact on Markets

Investors are also keeping an eye on the White House, with the Trump administration giving conflicting signals on talks with North Korea and plowing ahead with plans for tariffs on Chinese goods.

Elsewhere, oil also seemed to be settling after a string of declines in the wake of major oil producers’ plans to step up output. Saudi Arabia, Kuwait and the U.A.E. plan to meet in Kuwait City on Saturday to discuss supply plans.

NEW YORK, May 30 (Reuters) – US indices S&P 500 and Dow Jones Industrial Average showed the maximum one-day decline in percentage terms for the month following Tuesday’s trading, as political uncertainty in Italy raised concern about the stability of the euro zone, banks of the USA.

Italy can not form a coalition government after the March elections, which pointed to the growth of support for populist parties advocating a way out of the eurozone. Acting Prime Minister Carlo Cottarelli could not enlist the support of the country’s largest political parties.

The political crisis in Rome and the threat it poses to the euro area triggered the flight of investors to asylum assets, such as US bonds, which led to a decrease in the yield of 10-year Treasury government bonds and put pressure on US bank shares. Banking index S & P 500 showed the maximum one-day decline in more than two months, following the session lost more than 4 percent.

The Dow Jones closed the session down 1.58 percent to 24,361.45 points, the S & P 500 index – by 1.16 percent to 2.689.86 points, the Nasdaq Composite index – by 0.5 percent to 7.396.59 points.

Pressure on the securities of US banks was also caused by pessimistic forecasts and indicators of JPMorgan Chase & Co (NYSE:JPM) and Morgan Stanley (NYSE:MS). The head of corporate and investment banking JPMorgan said that the bank’s market revenue in the second quarter will not change compared to a year earlier. One of the leaders of private capital management Morgan Stanley said about the slowdown in activity since March, it follows from the report https://www.cnbc.com/2018/05/29/morgan-stanley-shares-drop-after-executive-outlines-challenges.html CNBC.

Shares of JPMorgan Chase fell by 4.3 percent, while Morgan Stanley fell by 5.8 percent.

Investing.com – Retail sales in Japan in April rose by 1.4% compared to March, according to preliminary data of the Ministry of Economy, Trade and Industry of Japan. A month earlier, a decrease of 0.6% was noted.

The rate of increase significantly exceeded forecasts. Experts interviewed by the agency Bloomberg, on average, forecast April’s growth in retail sales at 0.5%.

The increase in sales compared to last April was 1.6% (1% in March), with analysts expecting an increase of 1%.

Sales of department stores and supermarkets in April fell by 0.8% in annual terms after an increase of 0.1% in March.

More active growth of retail sales is necessary for the Japanese economy, largely export-oriented. Strengthening ща consumer demand with the gradual acceleration of the rate of increase in wages could support the economic recovery and inflation in Japan, analysts say.

The index of consumer confidence in Japan, calculated by the Cabinet, in May this year rose to 43.8 points from April 43.6 points.

Bloomberg.com — Is the worst over for Italian bonds? The nation’s debt auction on Wednesday could provide a clue or two.

The debt office plans to issue up to 1.75 billion euros ($2 billion) five-year bonds, 2.25 billion euros of 10-year debt and 2 billion euros of 2025 floating-rate notes. The bidding deadline is 10 a.m. in London, with results due about 30 minutes later. The five- and 10-year offers will be particularly in focus, with the maximum supply seen as equivalent to a combined 24,470 Italian bond futures or 2.5 million euros of risk per basis point move.

The auction could still sail through, given potential support from a bond redemption of 18.5 billion euros due on Friday. Intesa Sanpaolo SpA is the largest investor in that security, and domestic lenders typically reinvest maturity proceeds. Also, investors may take use the sale as an opportunity to buy in larger sizes than afforded in secondary markets.

Italian debt is set for the largest month-end index extension among European peers, according to Morgan Stanley, and should see passive index investors re-balance portfolios. It may easily be overlooked, but the nation’s securities now offer the highest yields for any major sovereign, excluding Greece.

Both the five- and 10-year securities on offer were last sold on April 27, when the five-year note saw demand slipping to 1.36 times the offer size from 1.78 previously, and overbidding of 1 cent. The 10-year had seen slightly improved appetite with the bid-to-cover ratio rising to 1.38 from 1.30, and 5 cents of overbidding.

Italy sold 5.5 billion euros of six-month bills on Tuesday at a bid-to-cover of 1.19, the lowest since April 2010. The meltdown in Italian assets has rendered any relative-value evaluation of the auction bonds mostly irrelevant. For example, using carry and roll analysis, investors would have lost three months of profits on Tuesday alone.

Bloomberg.com — Ten-year Treasuries rallied alongside core European bonds as the political crisis in Italy deepened, triggering risk-off trading across many global markets. Losses for the euro mounted and the region’s stocks sold off, while the dollar edged up.

The benchmark U.S. bond yield fell below 2.90 percent for the first time this month, while American equity futures retreated alongside the Stoxx Europe 600 Index. In Asia, the mood was also downbeat. The MSCI Asia Pacific Index dropped as shares of iPhone screen makers tumbled on a report that Apple Inc. is shifting to next-generation technology. The stronger yen left the Topix index of shares with a seventh straight session of declines, the longest losing streak since September 2016.

Political turmoil in Italy and — to a lesser extent — Spain have refreshed memories of the euro zone’s woes of the past decade. Pro- and anti-European forces are at loggerheads in Rome, with another election expected as early as September after parties failed to form a government in the wake of a poll in March.

“These developments are concerning,” Alessio de Longis, a New York-based portfolio manager at Oppenheimer Funds Inc., told Bloomberg Television in regard to Italy’s political landscape. “The market has taken a completely different tone, it no longer believes what the parties are saying. The markets will be really unable to move forward into a different narrative” until the Italian outlook is clearer, he indicated.

Elsewhere, the Turkish lira held most overnight gains after the central bank took steps to simplify its monetary policy. Many Southeast Asian markets were closed for holidays Tuesday, including Singapore, Indonesia, Malaysia and Thailand.

Investing.com – In today’s Asian trading session, the US dollar exchange rate slightly changes in tandem with the euro, the yen is growing on news from Italy, increasing uncertainty about the political future of the country.

As of 9:20 Moscow time, the euro fell to $ 1.1619 against $ 1.1625 at the close of the last session.

The value of the single European currency is at this time around 126.61 yen compared to 127.19 yen on Monday.

For the dollar at 0:20 Moscow time, 108.98 yen were given against 109.42 yen the day before.

The indicator WSJ Dollar, which tracks the dynamics of the dollar against 16 major world currencies, decreased by 0.07%.

As reported, Italian President Sergio Mattarrell instructed the economist, former representative of the International Monetary Fund (IMF) Carlo Cottarelli to form the interim government of the country.

Earlier S. Mutarella refused to approve the list of members of the new government, handed over to him by Acting Prime Minister Giuseppe Conte. In turn, the head of the movement “Five stars” Luigi di Mayo called in this regard to announce the impeachment to the president of the country. The refusal to approve the list was negatively perceived by the leader of the “League” Matteo Salvini.

S. Mutarella explained that he did not approve the proposed composition of the government, as Paolo Savona, claimed by the sharp criticism of the EU and measures of tight budgetary economy, claimed the post of Minister of Economy. The President of Italy explained that he saw in this nomination a danger to the country’s economy.

Investing.com – In April, unemployment in Japan remained at the March level of 2.5%, close to a minimum since 1993, according to official data.

The indicator coincided with the expectations of experts.

Unemployment holds at this point for three months in a row, which indicates a favorable situation in the labor market against the backdrop of a moderate recovery in the country’s economy.

Another indicator of the labor market showed that there are 159 open vacancies per 100 job seekers. This corresponds to the indicator of March and is the maximum for 44 years.

The head of the Bank of Japan Haruhiko Kuroda has repeatedly stated that the changing situation in the labor market should contribute to the growth of wages, increased costs and increased inflation.

The Fed should slow its pace of policy normalization to help re-align price expectations around 2 percent and maintain the credibility of its inflation target, Federal Reserve Bank of St. Louis President James Bullard said Tuesday in Tokyo.

“Inflation expectations in the U.S. remain somewhat low, suggesting that further normalization may not be necessary to keep inflation near target,” Bullard said in prepared remarks for a seminar. “A reasonable policy going forward may be to temper the pace of normalization.”

He also said that raising rates aggressively risked inverting the yield curve, an outcome that markets could interpret as signaling an impending economic downturn.

His comments come ahead of a likely rate increase at the Federal Open Market Committee’s meeting in June.

Bullard, who isn’t currently a voting member of the policy-setting committee, said continued low inflation expectations could inhibit the Fed’s ability to maintain the credibility of its 2 percent target.

He repeated his stance that the central bank should avoid raising interest rates at a pace that pushes up short-term rates above longer-term rates. Historically such a development has often preceded an economic downturn, especially in the U.S., he said.

Dallas Fed President Robert Kaplan and Atlanta Fed President Raphael Bostic have also expressed concern over a possible flipping of the yield curve.

“It is unnecessary for the FOMC to be so aggressive as to invert the yield curve,” Bullard said. “The U.S. nominal yield curve could invert later this year or in 2019, which would be a bearish signal for U.S. macroeconomic prospects.”

The Fed policy rate is already near neutral, putting neither upward or downward pressure on inflation, added Bullard, who has been the most dovish Fed official over the past two years. He has argued that the U.S. economy has been saddled with persistently low growth, so there is little need to raise interest rates much.

The FOMC is likely to raise rates “soon” if the economy performs as expected, according to the minutes of the panel’s May 1-2 meeting released last week. Investors expect a hike in June, though the outlook for increases in the second half of the year is less certain.

The FOMC has raised interest rates six times since it began the current hiking cycle in December 2015. In March forecasts, the committee was split on whether to lift rates two or three additional times this year amid an improving economic outlook and rising inflation.

Investing.com – The US White House has decided to postpone the imposition of new sanctions against North Korea amid ongoing talks over the likely meeting of US President Donald Trump and the DPRK leader Kim Jong-un, the Wall Street Journal reported citing sources.

The White House was ready to announce new sanctions already on Tuesday, but on Monday refused such measures for an indefinite period, notes one of the interlocutors of the newspaper.

The US Treasury, according to sources WSJ, has prepared a package of sanctions against about 30 persons. The list included, in particular, Russian and Chinese organizations, the newspaper writes.

“The actions were prepared in response to Kim’s recent aggressive rhetoric, which prompted Trump last week to abruptly cancel the next month’s summit, after which he announced a day later that such an opportunity still exists,” the newspaper writes.

At the weekend, Kim Jong-un held a meeting with South Korean President Mun Zhe In, which was the second after talks between the North Korean leader and South Korean president in April. Following the results of the first negotiations, which, as this time, took place in Panmunjom, the leaders agreed, in particular, to maintain contacts for solving problems.

In Panmunjom, talks between delegations from the United States and North Korea are also held, the newspaper said.

Earlier, US President D. Trump said that he decided to abandon the talks with Kim Jong-un, scheduled for June 12 in Singapore. Pyongyang reacted to this, saying that it was still ready for dialogue. After that, D.Trump said that he does not rule out that the DPRK-US summit will take place, on June 12 in Singapore.