The above-average turnout in the European elections did not translate to a populist surge (Tobias SCHWARZ)

London (AFP) – Eurozone equities were held down Tuesday as investors tracked a brewing political fight between Brussels and Rome, and continued to digest the outcome of  elections for the European Parliament, dealers said.

Milan, Frankfurt and Paris all retreated as Italian debt concerns returned to the fore.

London, where investors returned from a long weekend, did a little better as a weak pound helped stocks stem losses.

“Italy is once again becoming a problem for the eurozone,” said analyst Konstantinos Anthis at trading firm ADSS.

However losses were limited after a much-feared surge in populist groups was largely contained in European Parliament elections.

Although voters shifted allegiances in the EU elections, mainstream parties managed to retain control.

– ‘Political fight’ –

“European stock markets are in the red as Italian government bond yields have ticked up over fear of a political fight between Rome and Brussels,” said analyst David Madden at CMC Markets UK.

“The EU has warned the Italian government they could be fined… for failing to curb their debt levels, and Italy’s joint deputy prime minister Matteo Salvini declared he will use all his energies to fight the EU’s rules.”

Salvini said Tuesday he expected Brussels to slap Rome with a three billion-euro ($3.4 billion) fine over the country’s rising debt and structural deficit levels.

“At a time when youth unemployment touches 50 percent in some regions… someone in Brussels is demanding, under the old rules, a fine of three billion euros,” he told RTL 102.5 radio.

“All my energy will go into changing these rules from the past,” said Salvini, who has been emboldened after his far-right League party topped Sunday’s European Parliament elections in Italy.

The European Commission is expected to start disciplinary steps against Italy on June 5 by opening an excessive deficit procedure which could hand Italy a fine of up to 0.2 percent of the nation’s GDP.

Italy’s public debt is seen as a big problem, sitting at 132 percent of the country’s GDP in 2018 — way above the 60 percent EU ceiling.

– A softer pound –

The British pound continued to languish near recent lows after the anti-EU Brexit party soared in the European polls in the UK. That has put intense pressure on the ruling Conservatives who suffered a historic rout — and raised the chances of a no-deal departure from the EU at the end of October.

British Prime Minister Theresa May’s Conservatives finished in fifth place with nine percent — their worst performance since 1832. Qnd the main opposition Labour Party was also punished for not clearly spelling out its Brexit stance.

David Cheetham, analyst at broker XTB, said the outcome was “providing a headwind to any recovery for the pound”.

In Asia, markets mostly rose Tuesday as US President Donald Trump took a softer approach in Washington’s trade dispute with Japan as he wrapped up his visit to the Asian ally.

Trump’s visit came as a trade row between the US and China rumbles on, with no date set for tariff negotiations to resume.

Briefing.com analyst Patrick O’Hare said “in terms of the US-China trade issue, it continues to be a cry of stalemate as opposed to checkmate” which is probably why the markets weren’t too worked up.

“The ‘new’ news sounds like the ‘old’ news of prior weeks, which has already been weighing on the market,” he said.

US stocks were a touch higher in the late New York morning after trading resumed following a three-day holiday weekend.

– Key figures around 1540 GMT –

Milan – FTSE MIB: DOWN 0.5 percent at 20,260.98 points (close) 

London – FTSE 100: DOWN 0.1 percent at 7,268.95 (close)

Frankfurt – DAX 30: DOWN 0.4 percent at 12,027.05 (close)

Paris – CAC 40: DOWN 0.4 percent at 5,312.69 (close)

EURO STOXX 50: DOWN 0.5 percent at 3,348.85

New York – Dow: UP 0.1 percent at 25,601.89

Tokyo – Nikkei 225: UP 0.4 percent at 21,260.14 (close)

Hong Kong – Hang Seng: UP 0.4 percent at 27,390.81 (close)

Shanghai – Composite: UP 0.6 percent at 2,909.91 (close)

Euro/dollar: DOWN at $1.1177 from $1.1194

Dollar/yen: DOWN at 109.50 yen from 109.51 yen 

Pound/dollar: DOWN at $1.2671 from $1.2679 at 2050 GMT

Euro/pound: DOWN at 88.20 pence from 88.28

Oil – Brent Crude: DOWN 15 cents at $68.62 per barrel

Oil – West Texas Intermediate: UP 34 cents at $58.97

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Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.