Market update: Rome to manoeuvre: Italian elections to dictate market direction?

US equities continued their slide on Thursday (S&P 500 -0.6%; Nasdaq -1.0%), as fears persisted that the US Federal Reserve (Fed) may curb economic stimulus earlier than originally anticipated. A raft of macroeconomic data did little to persuade investors back into risk assets: in Europe purchasing managers’ indices were weaker than anticipated, while in the US weekly initial jobless claims (for unemployment benefit) rose 20,000 to a seasonally-adjusted figure of 362,000 – above consensus forecasts. The closely-watched Philadelphia Federal Reserve Bank survey also confounded expectations, as factory activity in the US mid-Atlantic region contracted in February, dropping to its lowest level in eight months (to -12.5, whereby a minus figure signifies contraction). The only bright spot was US home re-sales, which inched higher in January; elsewhere, US consumer price index inflation remained unchanged in January. 

After equities’ dive over the past two days, European markets are moving higher this morning, with some analysts saying that fears of the US Fed withdrawing stimulus too early have been overdone (FTSE 100 +0.7%; FTSE Eurofirst 300 +0.7%). Investors will now be turning their attention to Italy, which goes to the polls this weekend; while many expect a centre-left government to win headed by Pier Luigi Bersani, there have been signs of a resurgence in support for Silvio Berlusconi and the People of Freedom Party. The results could dictate the markets’ next move.