Asian shares lose ground amid Italian turmoil

Sydney — Asian shares fell on Tuesday and the euro hovered near six-and-a-half-month lows as early elections loomed in Italy, but a revival in diplomatic talks with North Korea and a retreat in oil prices from recent highs supported sentiment.

MSCI’s broadest index of Asia-Pacific shares outside Japan dipped 0.5% after three consecutive sessions of gains.

Japan’s Nikkei skidded more than 1% while South Korean shares slipped 0.8%. Chinese shares were weaker, too, with the blue-chip down 0.6%.

Australia was the only market that was firmer, thanks to gains in banking stocks. But liquidity was relatively thin with public holidays in Singapore, Malaysia, Indonesia and Thailand.

“The market has turned its focus to the continuing political situation in Italy,” said Nick Twidale, Sydney-based analyst at Rakuten Securities Australia.

European shares were hammered overnight after the anti-establishment 5-Star and League parties in Italy abandoned plans to form a government.

Investors feared Italy’s election campaign could focus on the country’s continued membership of European institutions and strengthen the populist parties’ hand.

Adding to the uncertainty, Spanish Prime Minister Mariano Rajoy will face a vote of confidence in his leadership on Friday.

“This should keep the risk trades pressured to the downside,” Twidale added. “[The] focus will remain on the on-again, off-again US-North Korean summit and the US-China trade relationship as we move through the Asian trading session.”

E-mini futures for the S&P500 gave up early gains but were still marginally firmer. Trade was subdued overnight with market holidays in the world’s two biggest financial centres -London and New York.

The tick up in US stock futures came as South Korean President Moon Jae-in flagged more impromptu talks and summits with North Korea’s Kim Jong-un after the pair’s surprise meeting at the weekend.

Kim had reaffirmed his commitment to “complete” denuclearisation of the Korean peninsula, Moon said, as US officials seek to revive what would be a historic meeting between President Donald Trump and Kim.

Currencies and oil

The euro was last at $1.1629 from Monday’s $1.1608, its lowest since early November.

The dollar rose 0.2% against a basket of major currencies to stay near the highest since mid-November.

But against the safe harbour yen, it dipped to ¥109 to edge closer to a recent three-week trough of ¥108.94.

Analysts will next focus their attention on US inflation data due later in the week which could provide clues to future interest rate rises ahead of the Federal Reserve policy meeting in June.

In a sign that investors were flocking to safer bets, US 10-year treasuries opened at six-week lows of 2.9% after the holiday on Monday.

Another potential overhang for Asian emerging markets was a truckers’ strike in Brazil to protest rising fuel prices which would “potentially feed through into higher food prices”, analysts at JPMorgan said in a note.

Brazilian equities plunged more than 4% on Monday to their lowest level so far in 2018.

Oil prices remained under pressure from the expectation that Saudi Arabia and Russia would pump more crude, even as US oil output rises.

US crude futures tumbled to six-week lows and looked set for a fifth straight day of declines. The July contract was last down 1.6% at $66.81 a barrel.

Brent crude futures edged up 0.3% after dropping to $74.49 a barrel on Monday, their lowest in about three weeks. They were last at $75.53.

Spot gold was barely changed at $1,297.00/oz.