World shares steadied on Friday, May 25, after a wobble caused by U.S. President Donald Trump’s decision to cancel a summit with North Korea, though political risk put Italian markets on track for heavy weekly losses.
MSCI’s all-country equity index was flat after three days of losses which put it on track for its second straight week in the red. Asian equities also eked out modest gains.
Equity futures signaled a firmer opening for Wall Street.
Markets were soothed by Pyongyang’s measured response to Trump’s Thursday announcement, with Vice Foreign Minister Kim Kye Gwan expressing hope for a “Trump formula” to resolve the standoff over its nuclear programme.
North Korea tensions aside, the appetite for risk was kept in check by concern over Italy’s president opposing the incoming coalition government’s plan to appoint a politically inexperienced eurosceptic as economy minister.
Political risk also reared its head in Spain, where a threat of no-confidence motions against Prime Minister Mariano Rajoy sent Spanish stocks and bond prices plunging.
While yields on German and U.S. bonds fell amid the uncertainty, there have been few signs of a wide-ranging sell-off in higher-risk assets – Wall Street’s volatility index stayed near four-month lows.
“Market reaction to heightened political risk remains reasonably muted. If they are not global events affecting large swathes of countries in a major way, the calculation is that the impact will be limited,” Indosuez Wealth Management global head of economic research Marie Owens Thomsen said.
European shares rose 0.2 percent, ceding some gains after the Spanish news broke. They are set for their first weekly drop since March, pressured by politics and signs the euro bloc’s economic recovery continues to run out of steam.
Italian stocks, which saw record outflows in the past week, fell 0.6 percent and were set for their third straight week of losses Spanish stocks fell 2 percent after news of the possible no-confidence motions, Reuters reports.
