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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

WTO and top Republican urge Donald Trump not to launch trade war - as it happened

President Donald Trump listens during a meeting with steel and aluminum executives last week.
President Donald Trump listens during a meeting with steel and aluminum executives last week. Photograph: Evan Vucci/AP

And finally.... Wall Street has closed, with a small but surprising rally that ends a four-day losing streak.

The Dow Jones finished the day up around 344 points, or 1.4%. The S&P 500 and the Nasdaq also finished in the green, up around 1%.

The close of Wall Street today
The close of Wall Street today Photograph: Bloomberg TV

So, what happened to those concerns about a trade war? Some traders are suggesting that the fears were overstated, especially with Paul Ryan and the WTO both weighing in.

Today’s strong US service sector data is another factor - reminding investors that America’s economy remains robust.

Fiona Cincotta, Market Analyst at City Index, explains:

Wall Street started the week on the back foot, sinking lower as trade war fears spilled over from last week’s announcement by Trump. However, stronger than forecast ISM non-manufacturing data quickly grabbed trader’s attention boosting sentiment and returning risk appetite to the market. ISM non-manufacturing data printed at 59.5, ahead of tht 59 forecast, albeit a slight dip from last month’s 59.9.

That’s all for today. Thanks for reading and commenting. GW

Here’s our news story on the unfolding battle over trade and tariffs in America:

Republican leader Paul Ryan publicly split with Donald Trump on Monday over the president’s threat to impose tariffs on the US’s trading partners on steel and aluminium.

The House speaker became the most senior Republican to publicly distance himself from Trump’s tariffs, which have rattled stock markets worldwide and sparked threats of retaliation. “We are extremely worried about the consequences of a trade war and are urging the White House to not advance the plan,” AshLee Strong, Ryan’s spokeswoman said in a statement.

She said the tariffs plan threatened to jeopardize the impact of Trump’s recently introduced $1.5tn tax reforms.

Ryan’s split came shortly after Trump had doubled down on the tariff plan in a pair of tweets. The president reiterated his displeasure with trade deficits with Mexico and Canada, two of the US’s largest trading partners. Metals duties will only be removed on America’s neighbours to the north and south, he said, after a “new and fair” free trade agreement is signed.

Trump followed up with another tweet proclaiming: “To protect our Country we must protect American Steel! #AMERICA FIRST.”

More here....

Trump won't back down over tariffs

US president Trump meeting Israeli prime minister Benjamin Netanyahu in the Oval Office today
US president Trump meeting Israeli prime minister Benjamin Netanyahu in the Oval Office today Photograph: Kevin Lamarque/Reuters

BREAKING: Donald Trump isn’t backing down, in the face of criticism from the World Trade Organisation and House Speaker Paul Ryan.

The US president has just declared that he doesn’t think tariffs on steel and aluminum will lead to a trade war, and he won’t change his position.

Speaking at the Oval Office, during a visit from Israel’s Benjamin Netanyahu, Trump says China is the biggest problem on trade.

The president also claims that America gets a very bad deal from Mexico today. He also hints that Mexico and Canada might get an exemption from the tariffs, if a “good deal” can be reached on NAFTA (something he tweeted about earlier).

WTO chief: Trade war would trigger a deep recession

Newsflash: The World Trade Organisation has warned that there is a real risk of plunging into a new trade war.

Roberto Azevêdo, the head of the WTO, told members that Donald Trump’s plan for a 25% tariff on steel imports, and 10% on aluminium, could be very damaging.

Azevêdo says it would be “very hard” to prevent retaliatory action, so it’s vital to prevent the first dominos falling now.

In a statement, Azevêdo warns that a trade war, with tit-for-tat sanctions, could result in a ‘deep’ global recession.

Here’s his warning:

“In light of recent announcements on trade policy measures,it is clear that we now see a much higher and real risk of triggering an escalation of trade barriers across the globe.”

“We cannot ignore this risk and I urge all parties to consider and reflect on this situation very carefully. Once we start down this path it will be very difficult to reverse direction.

An eye for an eye will leave us all blind and the world in a deep recession.”

Ryan challenges Trump on tariffs

Paul Ryan.

U.S. House Speaker Paul Ryan has weighed in, urging the Trump administration not to implement the new tariffs on steel and aluminum announced by the president last week.

Ryan fears that the move would hurt the US economy, and wipe out the benefits of the recent tax cuts.

AshLee Strong, a spokeswoman for Ryan, says:

“We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan. The new tax reform law has boosted the economy and we certainly don’t want to jeopardize those gains.”

Updated

European markets close

After a late rally, European markets have closed higher mostly higher.

Not in Italy, though, where the FTSE MIB ended the day 0.4% lower at 21,819. That’s a recovery from its early morning selloff.

In London, the FTSE 100 finished 46 points higher, or +0.65%, at 7,115 points - up from Friday night’s 14-month low. The City was cheered to learn that service sector growth hit a four-month high last month (but not so impressed by the latest fall in car sales)

In Germany, the DAX ended 1.5% higher at investors welcomed the news that Angela Merkel has secured a coalition deal with the Social Democrats.

In other news, a former Deutsche Bank trader has been fined £180,000 for his role in the Libor-rigging scandal.

Guillaume Adolph was also banned from working in the City, having tried to influence the information which Deutsche had submitted to the Libor panel.

Mark Steward, Director of Enforcement and Market Oversight at the FCA said:

“Mr Adolph improperly influenced several of Deutsche’s LIBOR submissions in disregard of standards governing LIBOR submissions. Mr Adolph’s misconduct threatened the integrity of important benchmarks.

He should have no further role in the financial services industry.”

Adolph had been nicknamed “Gollum” by Tom Hayes, the UBS trader who was jailed in 2015 for manipulating benchmark interest rates.

Updated

Tariff fears drive Canadian dollar to eight-month low

Ouch! The Canadian dollar just hit an eight-month low against the US dollar.

The ‘Loonie’, as it’s known in the markets, has weakened to $1.2975 - a level last seen in July 2017.

The Canadian dollar vs the US dollar (higher = a weaker CAD)
The Canadian dollar vs the US dollar (higher = a weaker CAD) Photograph: Thomson Reuters

That reflects concerns that Donald Trump’s latest burst of protectionism could cut Canadian exports into the US, hurting Canada’s economy.

As this charts shows, the dollar has enjoyed a mixed performance against other currencies - and fell against several major rivals.

march05capeconomicsdollar

Capital Economic’s John Higgins explains:

All else equal, the proposed tariffs might have been expected to boost the dollar against the currencies of other major economies too, as the duties would reduce US demand for exports from those countries.

But the greenback has actually weakened on average against its “major” peers. The Japanese yen and Swiss franc, traditionally seen as safe havens, have performed particularly well.

This is presumably also a product of the retreat from risk which has hit EM currencies. More generally, investors appear to have concluded that a marked shift towards protectionism in the US would ultimately see its economy fare worse than those of other developed markets.

Goldman Sachs have predicted that the NAFTA negotiations in Mexico will fail to make a breakthrough (having been somewhat derailed by Trump’s new tariffs):

Goldman Sachs on trade

Here’s confirmation that Italy is looking at a hung parliament, with Five Star Movement scooping the most votes but the centre-right parties collectively forming the largest bloc.

US service sector boosted by surging new orders

Boom! America’s service sector grew strongly in February, thanks to a surge in new orders.

The Institute for Supply Management’s monthly US service sector PMI came in at 59.5, ahead of forecasts, and close to January’s 59.9. Any reading over 50 shows growth, and these levels suggest the US economy rattled along last month.

Firms told the ISM that new business surged, pushing up the ‘new orders’ index to its highest rate since 2005. Some also cited Donald Trump’s recent tax reforms, although there was also anxiety about last month’s stock market volatility.

A separate PMI survey from Markit has hit its highest level since last August, confirming that American services firms did pretty well last month.

Here’s some snap reaction:

Wall Street opens lower

As predicted, shares are dipping at the start of trading in New York.

The Dow Jones industrial average has dropped by almost 150 points, or 0.6%, following Donald Trump’s latest burst of tweeting.

The open of Wall Street

Lawrence Mills of Finsa Markets says that “Trump trade war fears are leading to market nervousness”.

Just in: Credit Suisse has cut its rating on Italian shares, following Sunday’s election.

Back on Italy....and Richard Carter of investment management firm Quilter Cheviot predicts that the centre-right parties will assemble a ‘shaky’ coalition:

He writes:

“Arguably the performance of the Five Star Movement is another leg of the anti-establishment trend that has brought us Brexit and Trump, but the market reaction has been very sanguine so far. Uncertainty and unstable coalitions is not exactly a new phenomenon when it comes to Italian politics and the likelihood is that some sort of shaky centre-right government will be cobbled together in the coming weeks.

The most important thing for investors is that Italy’s place in the Euro or the EU does not look to be under threat at the current time while ongoing QE from the Eurozone Central Bank will keep a lid on Italian government borrowing costs.”

If Carter’s right, then Matteo Salvini of the right-wing Northern League will play a key role. So you should check out our preview of the man who scooped up more votes than Silvio Berlusconi with an anti-immigrant, pro-Russian and anti-EU platform.

German carmakers are coming under more pressure, as investors worry about a trade war breaking out across the Atlantic (as explained earlier).

German carmaker shares

Updated

Here’s Justin Benson, Head of Automotive at KPMG in the UK, on the latest fall in UK car sales:

“Diesel car sales continue to fall, albeit at a slower rate than recent months. However, diesel should still be a relevant choice for consumers, as the latest technology does help address air quality issues.

Whilst sales for petrol and alternatively fuelled vehicles are increasing, they are not filling the gap. Consumer confidence is low and the evidence suggests people are keeping their cars for longer before making a buying decision.

Whether or not this is due to Brexit is hard to say, but the automotive industry needs certainty in order to maximise new car sales growth.

Britain’s service sector is still growing slower than major European rivals, despite the pick-up last month.

Reuters Andy Bruce has the details:

Donald Trump certainly isn’t backing down on his tariffs, despite concerns that protectionism will hurt economic growth and could trigger a trade war.

Former Prime Minister Matteo Renzi at a polling station in Florence on Sunday.
Former Prime Minister Matteo Renzi at a polling station in Florence on Sunday. Photograph: Claudio Giovannini/AFP/Getty Images

A few years ago, Matteo Renzi was being hailed as the bright young hope for Italian politics. Back then, the young mayor of Florence was challenging the old guard and promising to reform Italy.

But then he seized power, in early 2014, by shunting PM Enrico Letta aside - only to be brought down in 2016 after the public rejected a referendum on electoral reforms.

Last night’s election results were a chastening reminder of how Renzi’s career has nose-dived (a fate shared more widely by social democratic parties). There are now reports that he’ll resign as head of the Democratic Party.

From Rome, my colleague Stephanie Kirchgaessner explains:

The centre-left coalition headed by Matteo Renzi did worse than expected, winning 19% of the vote according to early results.

While Renzi’s leading lieutenant, Maria Elena Boschi, won a safe parliamentary seat in South Tyrol in northern Italy, two other prominent politicians, the interior minister, Marco Minniti, and the culture minister, Dario Franceschini, were defeated.

The dismal showing prompted reports that Renzi, who was prime minister from February 2014 until December 2016, has stepped down as head of the Democratic party (PD).

Francesco Galietti, an analyst in Rome, said: “Renzi has been obliterated in what is perhaps the shortest boom-to-bust cycle of Italy’s political history. Early data suggest the PD won less than 20% of the vote, less than half its share in the EU elections of 2014, and it won’t be long before the non-Renzian forces of the left all go for the jugular.”

More here:

Northern League party leader Matteo Salvini today.
Northern League party leader Matteo Salvini today. Photograph: Stefano Rellandini/Reuters

Back over in Italy, the head of the right-wing Northern League has declared his party are ready to form the country’s next government.

Matteo Salvini also told reporters in Milan that investors shouldn’t cower from a new centre-right coalition, insisting:

The markets have nothing to fear.

The Northern League won around 18% of the votes, beating Silvio Berlusconi’s Forza Italia party to become the leading right-wing party.

Although the anti-establishment Five Star Movement won the greatest share of the vote (around 32%), the Northern League and its fellow right-wing parties have some 37% between them.

Forming a coalition will be very tricky, but Richard Turnill, BlackRock’s Global Chief Investment Strategist, suspects a deal will be found. It could include the Democratic Party, which had a bad election with just 19% of votes.

Turnill says:

“We believe it unlikely that M5S will partner with Lega to form a government. Lega’s ambition is to lead the center-right coalition rather than be a junior partner in an unstable alliance with M5S.

At some point, an increasingly mainstream M5S and the center-left Democratic Party may warm up to each other. A new Italian parliament needs to be convened by March 23, yet negotiations are likely to drag on beyond then. Political noise is poised to remain high until a sustainable coalition emerges.

Updated

Trump: We want a new and fair NAFTA deal

Newsflash: President Trump has just tweeted that the new planned tariffs on steel and aluminum could be changed...if America can get a “new and fair” trade agreement with NAFTA.

He’s also pushing Canada over agriculture trade, and Mexico over border controls.

Officials from the US, Canada and Mexico have been renegotiations the NAFTA pact for several days.

Trump’s plan to slap 25% tariffs on steel imports, and 10% on aluminum, have threatened to derail those talks, with Mexican and Canadian ministers keen to be get a blanket exemption.

The threat of a trade war between the United Stats and the European Union is weighing on European carmakers today.

Shares in BMW are down 1%, Daimler are down 0.3% and Renault has lost 0.35%.

This comes after Donald Trump tweeted on Saturday that he would impose a tax on European cars if the EU followed through on its threat of tariffs on US bourbon, jeans and motorbikes.

Overnight, the president also defended his new tariffs on steel and aluminium, despite UK PM Theresa May expressing concern yesterday.

Back in the markets, the Italian FTSE MIB is still down 1% as traders in Milan face the prospect of a hung parliament after Sunday’s election.

David Madden of CMC Markets says investor confidence in Italy has been shaken by the surge in support for Five Star Movement and the Northern League, at the expense of more mainstream parties.

The votes are still being counted, but the early indication is there will be no majority. Added uncertainty comes from the rise of the anti-establishment Five-Star Movement.

Traders fear the nation could be plunged into a period of political unpredictability, and this could delay much-needed reforms.

Claudio Ferrarese, portfolio manager at Fidelity International, says there could be weeks of uncertainty:

“A grand coalition is still possible, but smaller, traditional parties however, are in a position of weakness, and will have to strike a deal with the M5S or the Lega. More importantly, even though the Lega and the M5S will have a greater say in the political agenda, the more extreme views from either party are likely to be tamed somewhat once they get into power. Their anti-European rhetoric is already much softer than it was in the past, although they will place greater focus on fiscal easing, and a more confrontational attitude towards European partners.

“The political horse trading will now start and the first smoke will come for the election of the presidents of the chambers within the next three or four of weeks. That would be something to watch, depending on the names that are chosen, it will give a lead on where the coalition talks are going.

But the big swing towards populist parties isn’t causing too much angst in other markets. The markets may be concluding that political deadlock in Italy remains a domestic problem.

In London, the FTSE 100 has gained 25 points, having hit a 14-month low on Friday night.

European stock markets at 10.45am
European stock markets at 10.45am Photograph: Thomson Reuters

Here’s our latest news story on the elections:

Lord Willetts: Baby boomers should face new wealth taxes

A wad of £20 notes

Britain’s baby boomers should be hit with new wealth taxes, to spare younger generations from massive tax rises.

That might sound like a line from Labour’s John McDonnell. But actually, former Conservative minister David Willetts is the one calling for action to tackle intergenerational unfairness.

Willetts, who now chairs the Resolution Foundation, is speaking in London this morning, saying:

“As we baby boomers sit on so much wealth – which has continued to grow even as incomes have stagnated – one obvious source is for us to make a contribution through capital or property taxes...

“By the end of the next decade, the fiscal gap is set to grow to the equivalent today of £20bn a year and then to £60bn after another decade. That translates to an income tax hike of 15p in the basic rate by 2040, the burden of which will overwhelmingly fall on the generations following baby boomers.

My colleague Richard Partington is there, tweeting the key points:

Greek GDP figures released

A Greek flag.

Newsflash: Greece has recorded its fourth quarter of growth in a row.... just.

Greek GDP rose by 0.1% in the final three months of 2017, according to statistics body Elstat.

Elstat also revised up its estimate for growth between July and September 2017, from 0.3% to 0.4%.

Growth for 2017 as a whole came in at 1.4%.

Nathan Coe, chief finance officer of Auto Trader, reckons anxiety over Britain’s exit from the EU is deterring people from buying new cars:

“The dip in new car registrations continues to reflect the serious decline in diesel sales and the broader UK economic environment.

“This is further compounded by the uncertainty car buyers have over Brexit, with over sixty per cent saying it is causing them to delay or change their car buying plans. You could call it Brexiety I suppose!

Britain’s service sector was surprisingly strong last month, says Jeremy Cook, Chief Economist at WorldFirst.

He’s encouraged that firms reported that their cost pressures have eased recently:

“Higher orders and higher employment buoyed the service sector in February with the global economic recovery allowing for an uptick in new business. Interestingly, price pressures weakened to their lowest in 18 months and may limit the immediate need for a rate rise from the Bank of England at the May meeting.

It is good news that the pressures on margins and costs from exchange rates have been seen to lessen in the past few months or so with UK SMEs maintaining a very ‘wait-and-see’ approach to hedging.

UK services sector growth picks up

Newsflash: Growth in Britain’s service sector has risen to a four-month high.

Data firm Markit reports that activity in the dominant sector of the UK economy rebounded modestly in February. Firms reported that new business jumped last month, encouraging them to take on more staff.

Markit says:

Growth of incoming new business picked up for the second month running and reached its strongest since May 2017. Service providers commented on particularly marked business-to-business sales growth in February, helped by the improving global economic backdrop.

However, there were also reports that stretched household budgets remained a factor holding back domestic consumer demand.

This pushed its UK service sector PMI, which tracks activity, up to 54.5 in February, from 53.0 in January. Any reading over 50 shows growth.

UK service sector PMI

Duncan Brock, director of customer relationships at the Chartered Institute of Procurement & Supply, says UK consumers remained cautious last month.

In fact it was business customers that had the confidence to forge ahead with orders, as consumers hesitated over concerns about possible rate rises impacting on their household budgets and what the future could hold.

“But it was encouraging to see job seekers were the winners as hiring levels continued to rise and at the fastest rate since September 2017. Firms were eager to reduce accumulated backlogs in part created by difficulties in finding talented, skilled staff and in a period of exceptionally low unemployment.

Growth in the eurozone’s service sector dipped last month, from 58 to 56.2, including a small slowdown in Italy...

Today’s figures also show that petrol cars now make up 60% of the UK market, up from just 51% a year ago.

UK car sales deatils

That’s bad news for Britain’s greenhouse gas emissions, as the FT’s Peter Campbell tweets:

Howard Archer of the EY Item Club says Britain’s car industry is stuck in the slow lane.

Here’s his take on the latest fall in car sales.

  • Sales of diesel cars (down 23.5% year-on-year in February) have been decimated by pollution concerns and expectations of related government action to counter this. While this contributes substantially to the weakness in car sales, the overall softness has run deeper than this as the pick-up in demand for petrol (up 14.4% year-on-year in February) and alternatively fuelled vehicles (up 7.2%) has been insufficient to compensate for the slump in diesel sales
  • February’s 2.0% drop in private sector car sales points to squeezed, uncertain consumers still being reluctant to make major purchases.
  • While uncertainty over government policy on diesel cars has clearly affected fleet sales, another drop in February (down 2.5% year-on-year) also suggests that businesses are currently cautious in their car purchases amid significant economic and political uncertainties. Many businesses have likely become increasingly inclined to delay replacing vehicles.

UK car sales fall for 11th month running

Newsflash: UK car sales have fallen again, as drivers continue to shun new diesel models.

The SMMT reports that new car registrations dropped by 2.8% in February, compared to a year earlier, with 80,805 models sold.

UK car sales
UK car sales in February Photograph: SMMT

This is the 11th month of falling sales in a row, and means sales in 2018 are down 5.1% compared to a year ago.

Diesel sales slumped by 23.5%, while petrol sales rose 14.4% and electric car sales rose by 7.2%.

The SMMT says the slump in diesel registrations is “disappointing....given the latest low emission vehicles can help address air quality issues.” It suspects that diesel car owners are keeping their older cars for longer, following the emissions scandal (which has hurt demand for second-hand diesels).

February is usually a quiet month for car sales, as buyers hang on for the new number places next month. However, the SMMT is already warning that sales could be down in March.

Mike Hawes, SMMT chief executive, says:

Looking ahead to the crucial number plate change month of March, we expect a further softening, given March 2017 was a record as registrations were pulled forward to avoid VED [road tax] changes.”

Updated

Analyst: Get ready for more eurozone drama

Elliot Hentov, head of policy and research for official institutions for EMEA at State Street Global Advisors says the Italian election result should be a wake-up call to investors.

He argues that the eurozone crisis, dormant for so long, isn’t actually over:

“The Italian status quo – political inertia in the face of economic decline – is simply not sustainable in the long-term and Italian voters are restless. It remains to be seen whether the Five Star Movement can actually lead a government as any other constellation looks unfeasible.

The fact that a majority of votes went to parties outside of the mainstream is likely to be a warning for markets that Italy’s and Europe’s core challenges remain unresolved. All roads lead to Rome, at least when it comes to boosting the Eurozone’s viability, and markets will take note that euro assets need to reflect more than just the relatively buoyant economy. On the contrary, it is increasingly clear that the Eurozone drama is far from over, even if we may be enjoying the current intermission.”

Italian bank stocks have hit a two-month low this morning, Reuters reports.

Mujtaba Rahman of Eurasia Group says investors are worried that Italy’s populist parties would clash with Brussels over tax and spending rules, should they end up in power:

Euro exit, let alone EU exit remain very unlikely, as is a meaningful revision of the EU’s treaties to Italy’s favour, something both the League and Five Star have campaigned on. A bigger risk is the possibility of meaningful fiscal slippage, as either party moves to implement some of their flagship campaign pledges.

This will create more friction between Rome and the European commission. Italy is already at risk of failing to comply with EU-mandated fiscal targets, and any additional slippage may result in a new Excessive Deficit Procedure. Any attempts to roll back past reforms, most notably the 2011 pension reform, will also be seen with concern by investors

My colleagues have been live-blogging the Italian election through the night - and are covering all the reaction this morning:

The Milan Stock Exchange.
The Milan Stock Exchange. Photograph: Daniele la Monaca/REUTERS

Over in Milan, the Italian stock market has fallen in early trading.

The benchmark FTSE MIB index tumbled by 2% at the open. It then stabilised around 1% lower, so there’s no sign of actual panic.

Unicredit, Italy’s largest bank, has shed 2.5% while UBI Banca are down 3.8%.

Rebecca O’Keeffe, Head of Investment at interactive investor, says the markets are nervous.

“Italy looks to have taken a step to the right and moved towards populism and change.

The complexity of the Italian voting system makes it very difficult to establish what happens next and when, but neither of the anti-establishment Five star movement or League parties are an attractive option for markets or the euro.”

Shares in Silvio Berlusconi’s Mediaset company have fallen by over 4% after his Forza Italia party did worse than expected in Sunday’s election, lagging behind the Northern League.

Mediaset has been fighting a long legal battle with France’s Vivendi, and a strong showing by Forza Italia would have strengthened its hand.

Italian government bonds hit

Italian government bonds are falling in early trading, as investors worry that the country faces a period of instability.

This has pushed the interest rate (or yield) on 10-year Italian bonds up to 2.11%, from 2.03% on Friday. That suggests they’re seen as as little riskier today - especially when compared to German debt.

T

The euro has dipped in early trading.

It’s down around 0.3% at $1.228 against the US dollar following the Italian election results.

Hussein Sayed, chief market strategist at FXTM, explains:

The Euro found no support after Germany’s Social Democratic party voted for a coalition deal with Angela Merkel’s CDU party. The muted Euro reaction is mainly due to worries that the Italian elections delivered a hung parliament. The European Union would have a new headache to deal with if Italy formed a Eurosceptic coalition which would undoubtedly challenge EU budget rules.

Several of the Italian parties had pledged to abolish the EU’s fiscal compact, which would allow member states to borrow more.

The agenda: Italian populist triumph worries the markets

A polling station in Rome last night.
A polling station in Rome last night. Photograph: Giuseppe Lami/EPA

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Investors are jittery this morning as they digest Sunday’s Italian election results, and brace for further ratcheting up of the tensions over Donald Trump’s steel and aluminium tariffs.

Over in Italy, populist parties are celebrating - even though the election has delivered a hung parliament. Around half of voters abandoned the traditional mainstream parties, delivering a stinging rebuke to the centre-left Democratic Paty.

The anti-establishment Five Star Movement - no fan of the euro - came first with around 31% of the votes, according to preliminary voting.

The right-wing anti-immigration Northern League also had a good night, securing 17% of the vote. That means that Silvio Berlusconi’s centre-right bloc could end up back in power.

As my colleague Stephanie Kirchgaessner reports from Rome, a populist wave has swept Italy:

Andrea Marcucci, one of the Democratic party’s senators in the outgoing parliament, wrote on his Facebook page: “Voters have spoken very clearly and irrefutably. The populists have won and the Democratic party has lost.”

The exit polls showed Berlusconi’s coalition – which includes the Northern League – winning up to 36% of the vote, a result that could potentially help the billionaire media magnate clinch a fourth election victory under a complicated Italian election law.

Analysts were also poring over early data that suggested another potential political upset: Matteo Salvini, the firebrand head of La Lega – as the Northern League is now known – beating out Berlusconi within the centre-right coalition.

Under a “gentleman’s agreement”, whoever emerges as the winner between the two will choose the next prime minister, if the coalition were to win a majority.

Italy now faces a period of negotiations and horse-trading as the various parties try to cobble a deal together. That uncertainty is going to hit European markets today. with Germany, France and Italy all expected to fall.

There have already been losses in Asia overnight:

The Italian election result distracts from the news that Angela Merkel has secured a coalition deal with Germany’s Social Democratic Party.

The markets ended last week on a low point, after president Trump’s plans to impose tariffs on imported steel and aluminium sparked threats of retaliation from Europe.

The UK prime minister, Theresa May, has now waded in, telling Trump that Britain has “deep concern” about the plan.

A government spokeswoman explains:

“The prime minister raised our deep concern at the president’s forthcoming announcement on steel and aluminium tariffs, noting that multilateral action was the only way to resolve the problem of global overcapacity in all parties’ interests.

Adam Cole of Royal Bank of Canada says investors are bracing for more developments this week:

Markets have a mildly risk-off tone overnight as the threat of a trade war continues to overhang.

Over the weekend, administration officials in the US said there would be no exemptions to the new tariffs and reports suggest the EU could respond with reciprocal measures as early as this Wednesday.

Here’s what’s coming up today:

The agenda

  • 9am GMT: Eurozone service sector PMI for February
  • 9am GMT: UK car sales figures for February
  • 9.30am GMT: UK service sector PMI for February
  • 3pm GMT: US service sector PMI for February

Updated

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