Alertness quickly returned to the world markets. American stocks failed to support the positive sentiment of Asian markets overnight. As a result, S&P 500 lost 0.4%. At Asian session, the futures for this index has lost another 0.8% this morning, returning to the area of monthly lows and decreasing for the fifth trading session in a row.
The American exchanges are concerned about the prospects of companies' incomes. A strong start of a reporting season was not supported, and companies are demonstrating a slowdown in growth, causing questions about their prospects.
Increased pressure on the equity markets supports the demand for the dollar as a defensive asset. In addition, the Japanese yen also turned to growth, reflecting the investors’ withdrawal from risky assets in Asia.
Chinese bourses played almost all the yesterday’s growth, losing more than 3%. South Korean KOSPI and Japanese Nikkei have decreased by more than 2.5%.
In addition, Europe's attention to the markets is shifting to the ECB's possible response to the rise in interest rates in Italy's debt market. Market participants try to assess whether it will be a chance for the Italian Mario Draghi to reconsider the plans of the monetary policy. A softer tone can increase the pressure on a single currency but may maintain the sentiment on the stock and debt markets of the region.
Brussels takes a firm stand, calling for compliance by all EU members, as the easing for Italy will quickly cause similar demands from other countries, such as Spain and Portugal. The consequences for the euro of the budgetary problems of Greece and its increased public debt are still fresh in the memory of market participants. Considering the size of Italy (the 3rd eurozone economy) and its debt (more than 2 trillion), even a less profound economic downturn can undermine the growth of the entire region.
The growth of geopolitical tensions and the budgetary problems of Italy will probably strengthen the thrust into protective assets, including the dollar and the yen, and will continue to press on the stock indices. The EUR/USD pair in August received support on the approach to 1.1300. In case of development of the pressure on the euro, this level is again in the sight of speculators against 1.1450 by the time of writing.
