Market Snapshot: Dow futures fall more than 150 points as Italian drama grabs the spotlight

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Reuters

Carlo Cottarelli has been named Italy’s new prime minister to lead a caretaker government.

U.S. stock futures pointed to a sizable drop at the open Tuesday, as traders getting back to work after a three-day weekend were greeted by fresh Italian political drama.

Another Italian election looks likely within a few months, and it might lead the eurozone’s third-largest economy toward ditching the shared currency — which would represent quite a shakeup to the status quo.

Traders also were assessing efforts to revive a June summit between President Donald Trump and North Korean leader Kim Jong Un, as well as ongoing political uncertainty in Spain, where Prime Minister Mariano Rajoy was struggling to stay in power.

Check out: Here’s why markets are worried about Italian politics — again

What are the main benchmarks doing?

Dow Jones Industrial Average futures YMM8, -0.78% shed 165 points, or 0.7%, to 24,565, while S&P 500 futures ESM8, -0.80% lost 17.80 points, or 0.7%, to 2,700.50. Nasdaq-100 futures NQM8, -0.60% dropped 29 points, or 0.4%, to 6,931.25

Last week, the Dow DJIA, -0.24% advanced 0.2% for the week, the S&P 500 SPX, -0.24% added 0.3%, and the Nasdaq Composite COMP, +0.13% climbed 1.1%.

The three gauges are on track for May gains of 2.4% or more, as of Friday’s close. This month’s rally has put the Dow industrials back in the green for the year, up 0.1%.

See: Stocks are poised for their best May in 9 years, but this week is crucial

What’s driving markets?

U.S. stock futures are trading in the red alongside European equities SXXP, -1.25%  , which have been whacked by worries about a fresh Italian election, potentially in September.

An election looks to be in the cards, as an attempt to form a caretaker government led by International Monetary Fund veteran Carlo Cottarelli faces resistance. Cottarelli was put into that role on Monday by Italian President Sergio Mattarella, who had essentially blocked a coalition government of two big antiestablishment parties — the 5 Star Movement and the League.

Now those parties appear to be spurning Cottarelli, making him unlikely to win a vote of confidence in parliament. Instead, he likely will lead a caretaker government as prime minister only until another general election is called.

What are strategists saying?

“The crisis in Italian politics deepened over the weekend,” said a team of RBC strategists in a note Tuesday. “Repeat elections in early autumn now look likely. … Stay risk averse for now, would be our recommendation.”

“With markets transfixed on affairs in Italy and Spain (amid a vote of no confidence for Rajoy), we are seeing a sharp shift into safe haven assets, driving the Japanese yen and gold prices higher in recent days,” said Joshua Mahony, market analyst at IG, in a note.

Which economic reports are on tap?

A March figure for the Case-Shiller home price index is due at 9 a.m. Eastern Time, and a May reading for the Conference Board’s consumer confidence index is slated to arrive at 10 a.m. Eastern. Economists polled by MarketWatch expect the confidence gauge to come in at 127.5.

Check out: MarketWatch’s Economic Calendar

On the Federal Reserve front, St. Louis Fed President James Bullard reportedly said early Tuesday in Japan that it was difficult for the American central bank to raise interest rates by a large margin when the Bank of Japan and the European Central Bank were pursuing accommodative policy.

What are other markets doing?

The pan-European Stoxx Europe 600 Index SXXP, -1.25% fell 1.3%, while Italy’s FTSE MIB stock benchmark I945, -2.75% was down nearly 3%.

The euro EURUSD, -0.6280% recently changed hands at $1.1557, down from $1.1625 late Monday in New York, helping the ICE U.S. Dollar Index DXY, +0.80% inch up.

Gold futures GCM8, -0.08% edged higher, but U.S. oil futures CLN8, -1.55% fell more than 1%.