LONDON (Reuters) - Nine days ahead of Britain's election and PM Theresa May's lead over Labour is narrowing all the time, according to a string of polls - the latest one by Survation out this morning has it down to just six points.
Financial markets aren't really sure how to read this one: if you take May's logic, a weak performance would give her a correspondingly weak hand in Brexit negotiations and so increase the chances of either a "bad" deal for Britain or no deal at all. That, at least, was the rationale behind sterling's falls last week.
But some analysts note that if it ever came to a hung parliament, that could increase the chances of a softer Brexit than what is currently envisaged by May - which, according to your point of view, might actually be good for the economy.
Things are in no less flux in Italy, where former prime minister Matteo Renzi at the weekend suggested the next election could be held at the same time as Germany's in September because that made sense "from a European perspective".
That prospect edged yet closer as the 5-Star Movement gave its backing to a new voting law setting out a proportional electoral system, meaning Italy's four most popular parties are behind it. One government source told Reuters that momentum was now growing for an autumn election and that things should be clearer in just over a weak. More clues may emerge from a meeting of top officials from Renzi's party today.
MARKETS AT 0655 GMT
Europe’s hot political summer is warming up again. The prospect of early Italian elections and talk Greece may opt out of its next bailout payment are weighing on the euro and knocked shares in Asia.
All this pushed the traditional safe-haven assets of gold and the Japanese yen higher and pushed yields on low-risk German government bonds to their lowest in more than a month with UK markets set to re-open after a holiday.
In Britain, an opinion poll out on Tuesday follows the recent trend in showing Prime Minister Theresa May’s lead over the main opposition Labour party narrowing two weeks before a general election.
Sterling is down 0.2 percent versus the dollar at $1.2808, not far from Friday’s three-week low of $1.2775. The euro is down 0.4 percent at $1.1117 and the yen is up 0.4 percent at 110.84 per dollar. The dollar index is up 0.3 percent.
In fixed income markets, German 10-year government bond yields are down marginally at 0.29 percent while Italian equivalents are up 4 basis points at 2.12 percent. Investors are watching German inflation data later in the day.
European shares are expected to open slightly lower today with equity index futures last down 0.1-0.3 percent. In spite of weakness seen in the last couple of weeks, the pan-regional STOXX index is set to end May in positive territory, near 2-year highs and scoring its fourth straight month of gains.
Investors however are reshuffling their portfolios as they seek fresh catalysts following a surprisingly strong earnings season. European equity strategists at Deutsche Bank downgraded banks to underweight, while upgrading energy and construction to overweight. Banks came under pressure in the previous session, dragged down by Italian lenders which were sold on worries over possible early elections.
Ryanair will be in focus after Europe's largest carrier by passenger numbers reported an annual net profit of 1.32 billion euros, at the lower end of its forecast range of 1.3-1.35 billion euros but in line with analyst forecast. The result came despite sharp falls in average fares due to overcapacity and Britain's vote to leave the European Union.
Aryzta shares are seen opening up more than 2 percent after the Swiss food company reported better than expected results.
Also watching British Airways owner IAG after a power surge caused major disruption at London’s Heathrow airport.
Other stock movers: Singapore's central bank fines Credit Suisse, UOB over 1MDB-linked transactions; Akzo Nobel wins court case against dissident shareholders; Catering group Elior keeps financial targets after H1 profits rise; RBS investor group accepts offer to end lawsuit over 2008 cash call; Bank of Ireland fined 3.2 million euros over money laundering controls; Linde AG to sign major Russian order - sources; Monte dei Paschi says in exclusive talks over bad loan sale.
In Asia, MSCI’s main index of Asia-Pacific shares excluding Japan is down 0.2 percent while a strong yen helped push Tokyo stocks fractionally lower.
Brent crude is down 25 cents at $52.04 with the global glut still weighing on prices; gold is up 0.1 percent at $1,268 an ounce.
Emerging market stocks and currencies were nudged lower on Tuesday as a rise in the dollar and bets on another U.S. rate hike next month subdued risk appetite for the time being.
Editing by Andrew Heavens