European Stock Futures Lower; Italy Vote Adds to Uncertainty

By Peter Nurse - European stock markets are expected to open  lower Monday, weighed by a deteriorating economic outlook and political uncertainty.

At 02:00 ET (06:00 GMT), the DAX futures contract in Germany traded 0.9% lower, CAC 40 futures in France dropped 0.8%, while the FTSE 100 futures contract in the U.K. traded largely flat.

European equities have been under pressure for most of the year as investors fretted over the toxic combination of high inflation, aggressive monetary tightening, a brewing energy crisis and the economic consequences of the Russia-Ukraine war.

Dismal business activity data from the Eurozone and the U.K. last week heightened fears of a regional recession, and investors will look to the release of the German Ifo business climate index for September later in the session for further clues of corporate sentiment in the Eurozone’s largest economy.

Adding to the region’s woes was the electoral victory in Italy late Sunday of a right-wing alliance led by Giorgia Meloni's Brothers of Italy party, likely giving the country its most right-wing government since World War Two.

Although Meloni, who is set to become Italy’s first female leader, has played down her party's post-fascist roots, there will be a great deal of uncertainty over how she attempts to deal with the growing economic headwinds facing the third largest economy in the Eurozone given its daunting debt mountain.

Global tension is also mounting over the war in Ukraine, as Russia holds widely-criticized votes aimed at annexing territory it has taken by force. 

The U.K. stock market could outperform Monday after the British pound hit a record low on Monday in the wake of last week’s unveiling of the country’s biggest package of tax cuts in 50 years to support laggard economic growth.

The fall in the pound illustrates the market’s doubts over the sustainability of such a move, given that the country faces slowing growth and twin deficits. However, it could also help a number of the country’s corporate giants which derive a lot of their revenue overseas, and thus will be boosted by the weak pound when this is repatriated.

Oil prices weakened Monday, falling to levels not seen since early January, weighed by the surging U.S. dollar and on concerns that slowing global economic activity will dent demand for crude.  

The dollar index, which tracks the greenback against a basket of six other currencies, climbed to a fresh 20-year high on Monday, making all commodities, including oil, which are denominated in dollars more expensive for foreign buyers.

By 02:00 ET (06:00 GMT), U.S. crude futures traded 0.9% lower at $78.03 a barrel, while the Brent contract fell 0.9% to $84.25. Both contracts slumped around 5% on Friday, falling to eight-month lows.

Additionally, gold futures fell 0.6% to $1,646.70/oz, while EUR/USD traded 0.5% lower at 0.9641.

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