European stocks tumbled the most in two months on Monday, as tariff worries, a bond selloff and a highly disappointing ISM manufacturing print in the US conspired to undermine sentiment.
The Euro Stoxx 50 fell more than 2%, as did the DAX. Italian equities led losses, falling 2.3% on the day.
Bund yields surged, rising 8bps to start December, dragging down bond proxies in the process. German 10-year yields are now nearly 50bps off the lows hit in August (but still negative, of course).
The SX5E has only fallen 2% or more in four sessions this year – Monday was one of those sessions. All 19 Stoxx 600 sectors fell.
Bunds were pressured in part by the prospect of fiscal stimulus amid political turmoil in Berlin, where an SPD leadership shakeup is likely to precipitate more calls for a loosening of the purse strings.
Meanwhile, Italian yields surged 12bps on wrangling over reform to the European Stability Mechanism, a cause that has managed to bring Matteo Salvini and Luigi Di Maio back together after their bitter summer feud that nearly handed Salvini the keys to the country (thankfully, that outcome was averted thanks to a last minute tie-up between Five Star and the Democratic Party).
These are not trivial moves. 12bps is a lot considering 10-year Italian yields fell below 1% late in the summer amid the voracious global bond rally.
Ironically, the worst session for European assets in months comes on a day when the final PMIs for November bolstered the contention that the bloc’s economy may be stabilizing.
Such are the tragic ironies when you’re a fractious monetary union comprised of wildly disparate economies which are themselves contending with contentious national politics and the looming threat of bloc-wide Japanification.