Political Drama in Italy and Tariffs Reduce Investor Confidence in Europe

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An intensifying row over tariffs and the political crisis of Italy knocked investor confidence in the largest economy of the Eurozone to its worst since 2012.

The closely watched Zew indicator of economic sentiment for Germany dropped by 7.9 points in June to reach a negative reading of 16.1 which is considered to be the most bearish since September 2012 and well below the long-term average of 23.3.

According to Lloyds Bank, the British investor appetite for Italian assets also plunged. The balance of investors with a positive outlook on the stock indices of the country dropped to a negative reading of 18.9 percent, which is said to be far below the low of negative six for the year so far.

The darkened mood is reflecting a stormy beginning to the summer for Europe, in spite of the fundamental economic conditions which seems to still be fairly strong.

The political deadlock of Italy caused investors across the world to flee Italian assets and heightened concerns of a new election with euro membership as the main issue. However, the populist coalition that was since formed has appointed a new finance minister who has committed firmly to staying in the euro.

However, the conditions could still worsen once the tariffs on imports from the United States that were introduced by the European Union provoke a retaliation from Donald Trump, the President of the United States of America. During the weekend, Trump alarmed allies with the warning of tariffs on the imports of cars, a major export from Germany.

According to the chief investment officer at Lloyds Bank Private Banking, Markus Stadlmann, the views of British investors on the financial outlook are “decidely mixed.”

He stated: “Whilst optimists cite a softer US dollar and lower long-term bond yields in several major markets, making the case for resilience in equities, more pessimistic investors could be influenced by risks from Italian and Spanish politics and are worried about the rising trade tensions between the US and the EU.”