Major stock markets fell on Monday as political uncertainty in Spain and Italy revived worries that the steps taken to rein in the euro zone debt crisis could unravel.
The MSCI’s world equity index fell by one per cent and was on track for its worst day since November. European stocks posted their lowest close of the year, as shares in Spain and Italy tumbled.
Reuters reported on Monday, that Spanish 10-year bond yields climbed to six-week highs after Prime Minister Mariano Rajoy faced calls to resign over a corruption scandal involving allegations in the media that he received payments from a slush fund.
Rajoy denies any wrongdoing.
“The prospect of Rajoy’s resignation has roiled the markets,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
“Any fresh political instability in (the) euro zone’s most important periphery economy could undermine the sense of investor confidence and send Spanish yields higher, making it much more difficult for the government to implement its austerity measures.”
In Italy, former Prime Minister Silvio Berlusconi, one of the top candidates in this month’s general election, is seeing a resurgence in popularity, which threatens the reforms implemented by the outgoing technocrat government.
United States stocks declined after a disappointing report on factory orders, retreating from a rally on Friday that drove the S&P 500 to a five-year high and the Dow to close above 14,000 points for the first time since October 2007.
“S&P technicals are at overbought levels, and risk-off harbingers, such as Spanish 10-year yields, which are much more difficult for central bankers to tame, have bounced off recent lows,” said Peter Cecchini, managing director at New York-based Cantor Fitzgerald & Company
The Dow Jones industrial average fell by 120.15 points, or 0.86 per cent, to 13,889.64. The Standard & Poor’s 500 Index dropped by 14.60 points, or 0.96 per cent, to 1,498.57. The Nasdaq Composite Index slipped by 39.81 points, or 1.25 per cent, to 3,139.28.