By Kit Rees
LONDON, May 30 : A modest recovery in Italian stocks failed to lift European equities more broadly on Wednesday as investors mulled the possibility of a new Italian election as early as July.
The pan-European STOXX 600 index was down 0.2 percent by 0842 GMT, while Germany’s DAX rose 0.1 percent.
Major Italian parties called for a new election in July as last-minute efforts to form a government showed little sign of succeeding on Wednesday.
Worries over Italian politics and that a repeat election could become a de facto referendum on the euro have hit European stocks this week, with Italy’s benchmark FTSE MIB touching its lowest level since July 2017 on Tuesday.
“It’s taken the shine off markets which had been going very well recently, but at the moment I would say the sell-off looks to be of a smaller order than we’ve seen in previous incarnations of the euro zone crisis,” Laith Khalaf, senior analyst at Hargreaves Lansdown, said.
Italian banks, which dropped 4.7 percent in the previous session, rose 0.8 percent following five days of straight losses. At the broader sector level a fall among European financials was the biggest drag on the STOXX 600, with Europe’s banking index down 0.9 percent.
Though Italy’s index recovered some ground with a 0.5 percent rise on Wednesday, Italian stocks are down more than 4 percent so far this week and have given up all of the gains they had made in 2018.
Atif Latif, director of trading at Guardian Stockbrokers, said that while they did not see a risk of contagion to other markets, volatility could remain as Italy seeks a resolution to its political crisis.
“Risk off remains so (we) would use this as an opportunity to buy good quality names caught in the crosswire,” Guardian Stockbrokers’ Latif added.
Elsewhere concerns over U.S.-China trade relations also soured the mood after the United States said on Tuesday that it still holds the threat of imposing tariffs on $50 billion of imports from China.
While the focus remained firmly on politics, shares in Vivendi were the biggest individual fallers, down nearly 4 percent after its subsidiary Canal+ was left empty-handed in a crucial soccer broadcasting rights auction in France on Tuesday.