By Geoffrey Smith
Investing.com -- Italy’s stock market was again the star performer in Europe on Tuesday as the country’s political parties edged closer to a deal that would end the threat of a direct confrontation with the EU over its budget deficit, at least in the short term.
The 5 Stars Movement and center-left Democratic Party have until Wednesday to decide whether or not to form a new government and banish the risk of snap elections later this year. That would most likely lead to them presenting a budget for 2020 acceptable to the European Commission and its partners in the euro zone.
However, it would also keep Italy in the budgetary straitjacket that has contributed to the rise of populism in the country, and would still leave it without a clear path to reviving growth. In other words, it offers no real departure from a tradition of political instability that has given the country 65 governments in the last 72 years.
As far as investors are concerned, those are problems for another day. The FTSE MIB was up 1.0% by 5 AM ET (0900 GMT), led by banks and, conspicuously, by more defensive infrastructure stocks such as power grid operator Terna and gas network operator Snam. The banks were being lifted by the rally in Italian bonds, reflecting their large holdings of the asset class. Unicredit (MI:CRDI) was up 1.6% and Intesa Sanpaolo (MI:ISP) was up 0.6%, even after reports indicating that the two parties were deadlocked over the question of who should lead the new government.
Other markets continued to labor under the growing threat of a hard Brexit, confirmation of a miserable second quarter for the German economy and, more than anything, the prospect of an ever-worsening trade war between the EU’s two biggest trade partners, the U.S. and China.
The benchmark Stoxx Euro 600 was up less than 0.1% at 371.36, while the U.K. FTSE 100 fell 0.4% as it reopened after the summer bank holiday. Germany’s DAX was up 0.2% after a second reading of gross domestic product confirmed that the euro zone’s largest economy shrunk by 0.1% in the three months through June, due largely to a slump in exports.
Tellingly, the FTSE 100’s best performer was gold miner Fresnillo (LON:FRES), with a 3.0% rise that followed the surge in the precious over the weekend. Silver miner Polymetal, which reported strong earnings, also rose by 2.1% to a new seven-year high.