European stocks step lower

Gains for European stocks largely faded Tuesday, with investors considering results of U.S. President Trump’s unprecedented summit with North Korean leader Kim Jong Un in Singapore.

How markets are performing

The broader Stoxx Europe 600 Index SXXP, +0.07% slipped by less than 1 point to 387.80 after rising as much as 0.4%. The basic materials and oil and gas groups led declining sectors, but the utility and tech groups moved higher. On Monday, the index rose 0.7%, the first rise in five sessions.

Germany’s DAX 30 index DAX, +0.05%  flipped down, losing 0.1% to 12,827.12. France’s CAC 40 index PX1, -0.19% reversed course and fell 0.3% to 5,454.63.

In London, the FTSE 100 UKX, -0.26%  fell 0.3% to 7,712.46, also giving up early gains.

But Spanish and Italian stocks advanced. Spain’s IBEX 35 IBEX, +0.32%  was up 0.5% to 9,943.00, and Italy’s FTSE MIB index I945, +0.48% rose 0.3% to 22,148.03. That extended Monday’s 3.4% leap, seen after Italy’s economy minister said the country’s new coalition government is committed to eurozone membership.

Investors continued to snap up Italian debt, driving down the yield on Italy’s 2-year note TMBMKIT-02Y, -17.06% by 24 basis points to 0.84%, according to Tradeweb. Yields fall when bond prices rise. The yield on 10-year TMBMKIT-10Y, -1.10%  fell 8 basis points to 2.7%.

The euro EURUSD, -0.0170% traded at $1.1796, slightly higher than $1.1785 late Monday in New York.

What’s driving markets

European bourses started to retreat after posting gains at the open. When trading got underway, Trump and Kim had signed a joint document pledging to work toward the complete denuclearization of the Korean Peninsula, but the statement was criticized as lacking detail on the verification of the process.

The meeting was unprecedented as it was the first between a U.S. sitting president and a North Korean leader.

“The lack of a response [in the markets] though may be a reflection of the fact that the agreement still lacks some detail and given the unpredictable and volatile nature of the two leaders, there’s no guarantee that it won’t run into significant difficulties. Still, progress is important which makes today a big success,” said Craig Erlam, senior market analyst at Oanda, in a note.

Meanwhile, the Brexit issue returns to the fore, as U.K. lawmakers in the House of Commons will begin debating amendments by the House of Lords to the bill that takes the U.K. out of the European Union. The 15 amendments include a measure to keep the country in the EU’s customs union.

Prime Minister Theresa May’s Conservative government runs the risk of losing its bid to overturn some of the amendments if enough Conservative lawmakers decide to vote alongside opposition parties.

Central banks in motion

Beyond geopolitics, traders are focusing on central-bank meetings this week. The Federal Reserve begins its two-day meeting on Tuesday and markets expect an interest-rate hike on Wednesday. On Thursday, European Central Bank policy makers are expected to announce the timing for unwinding its bond buying. The Bank of Japan will release a policy update Friday.

“There seems to be suggestions that the ECB is going to reduce QE, but I’m scratching my head on how they can actually do that. Industrial production in Germany and France has slowed, credit growth has slowed, retail sales are slowing,” said Kully Sumra, vice president of international services at Charles Schwab, in an interview.

“And the Bank of Japan ... looks like they’ve may have reached a cyclical corner and things might be slowing down a little. This week is really going to be marked by a continuing divergence between the three big central banks. The Fed has a very clear path in terms of hiking rates and the ECB and the Bank of Japan, much less so.”

Stocks in focus

French retailer Casino Guichard-Perrachon SA CO, +0.79%  climbed 3%, but pared bigger gains, after it revealed plans to sell non-core assets worth about 1.5 billion euros ($1.77 billion) to accelerate its debt-reduction efforts in France.

Economic data

Basic wages in the U.K. rose 2.8% in the three months to April, the Office of National Statistics said Tuesday. Analysts polled by FactSet were looking for a 2.9% rise in wages excluding bonuses. The unemployment rate remained at 4.2%, meeting expectations.

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Source: marketwatch.com