STI falls 2% on Italy woes, trade tensions

All three banks were hit hard, with DBS and UOB down 3.2% and OCBC slipping 3%

Jitters over Italy's political crisis and its impact on the overall direction of the eurozone plus renewed concerns over US-China trade tensions set the Singapore bourse on risk-off mode, with the benchmark slipping well below the 3,500 mark yesterday.

The key Straits Times Index tumbled 74.53 points or 2.12 per cent to finish at 3,443.95 with some 2.03 billion shares worth $1.9 billion changing hands versus Monday's 1.29 billion shares worth $885.4 million.

Other Asian markets were also awash in red. Japan's Nikkei 225 dropped 1.5 per cent, South Korea's Kospi lost 2 per cent and China's Shanghai Composite tumbled 2.5 per cent while Hong Kong's Hang Seng fell 1.4 per cent.

The tensions in Italy following its March polls that saw no clear winner emerge have now boiled over with the prospect of fresh elections as early as July.

One chief worry about the possibility of fresh polls - apart from the fact that it leaves Europe's third-largest economy in a limbo - is that it could turn into a referendum on whether Italy should leave or stay in the European Union's common currency area if Eurosceptic parties gain a stronger foothold. This would be the bloc's next biggest challenge since Britain voted to quit the union two years ago.

"It remains to be seen if this Italian fiasco will morph into a wider euro-area crisis, as the political situation remains fluid. But the latest developments, coupled with the recent deterioration of European economic momentum, will likely see the European Central Bank (ECB) putting its policy normalisation plans on hold," said a note by DBS's chief investment office.

Providing a double whammy to market sentiment was renewed concerns over US-China trade tensions after US President Donald Trump said a finalised list on the planned US$50 billion tariffs on Chinese imports will be released mid-June with an imposition after.

"The level of US tariffs is in line with our expectations, and even with one-to-one retaliation from China, the short-term economic impact in China, the US and elsewhere is likely to be modest," said Oxford Economics in a note.

"But in the midst of seemingly fruitful negotiations to increase Chinese buying from the US, the US measures underscore that economic tensions and rivalry between the world's two largest economies are on the rise," it added.

The local bourse was closed on Tuesday for the Vesak Day holiday.

Adding to the euro's woes - Spanish Prime Minister Mariano Rajoy will face a vote of no confidence tomorrow.

These aside, the market will also be monitoring a string of important macro data to be released by the US, including private hiring and the second estimate of its first-quarter GDP.

All three banks that comprise the lion's share of the STI were hit hard, with DBS and UOB down 3.2 per cent and OCBC slipping 3 per cent.

Singapore Exchange fell 12 Singapore cents or 1.6 per cent to $7.25. The SGX announced late Tuesday that it will hold back its launch of new India derivatives products and head for arbitration in India to settle a dispute with the National Stock Exchange of India (NSE).

The announcement came after the Bombay High Court said it will make a decision on June 16 on the injunction filed by NSE to block SGX from launching the new products.

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