Europe’s stock markets slumped on Monday in reaction to the political strife in Italy and the United States.
There was a big sell off of shares in Milan, which is suffered its worst session for six weeks. That is due to worries that fresh elections there could delay much needed economic reforms.
Alberto Gallo, credit analyst at Royal Bank of Scotland said: “The government’s ability to pass structural reforms and handle the crisis around Italy’s corporates and banks remains in question.”
The new crisis come as next year’s budget law is being negotiated.
The cost of borrowing for the Italy’s heavily-indebted government also jumped. However Italian government bond yields came off their highs after Reuters reported that as many as 20 senators from the centre-right party of Silvio Berlusconi were ready to form a breakaway group if he continues to threaten to bring down the government.
The euro has slipped against other major currencies, because of concerns Italy’s problems could reignite the eurozone’s debt crisis.
“Markets have grown accustomed to Italy’s dysfunctional politics, but there’s a sense that things are now spinning out of control, with potentially dangerous consequences for both Italy and the eurozone,” said Nicholas Spiro, who runs specialised consultancy Spiro Sovereign Strategy.
The deadlock in the US Congress as its budget deadline nears with greatly increased chances of a government shutdown did not help.
That could have significant implications for growth and consumer confidence in the world’s largest economy.
Adding to market worries was a surprise downward revision to activity in China’s factory sector for September, suggesting Asia’s economic powerhouse is still struggling to stabilise after a period of slower growth.
Brent crude oil fell to less than $108 a barrel.