Opening Bell: Global, U.S. Stocks Rally; Italian Bonds Slump On Euro Risk

On Tuesday, US majors posted relatively modest gains. The S&P 500 eked out a 0.7 percent gain, led by shares of Materials (+0.76 percent), Consumer Discretionary (+0.58 percent), Technology (0.35 percent) and Industrials (+0.12 percent). Consumer Staples (-8.06 percent) was the biggest laggard of the rally, as investors favored growth sectors.

The fact that Materials stocks outperformed suggests that investors saw the sector's lackluster performance over the trade war saga as a buying opportunity, even before the latest conciliatory moves by the US and China were unveiled yesterday.

Gains in the Industrials sector, however modest, also indicated that the single biggest headwind to stocks over the last few months, trade war jitters, is now dissipating.

Reinforcing this view: the Dow Jones Industrial Average was the only major US index to slightly retrench, ending 0.05 percent lower. However, this marked a rebound from a deeper 0.4 percent slide and can therefore be considered a positive close.

The most noticeable performance, however, came from technology stocks. The NASDAQ Composite and the NASDAQ 100 each pushed higher, 2.6 percent and 2.85 percent respectively, over three days, adding 0.4 percent 0.33 percent just yesterday. This allowed both tech-heavy indices to make record highs on Tuesday, for the first time since mid-March.

Is bearish sentiment on the way to disappearing? Unlikely. Heightened political headwinds in Italy continue to shape the narrative.

Italian bonds—whose recent selloff prompted a risk-off wave across global financial markets, sparking fears of a broader contagion effect—suffered their heaviest slump in a week yesterday, after new Italian Prime Minister Giuseppe Conte laid out a euroskeptic agenda that promises to challenge the EU on different policy fronts. Although Conte said the country's exit from the single currency was not on the cards, the mere mention of those two words “euro” and “exit” together was enough to spook traders.

The radical plans outlined by Italy's new PM may have reminded investors of Trump's "revolutionary" rhetoric, as both identified "unfair" external interference—in the case of Italy, the stringent economic and financial measures set out by the EU to drive the Southern European country out of the post-2008 financial crisis— as the cause of domestic headaches.

Investors are also bracing for an anti-Trump backlash in a meeting with the Group of Seven this week: while relations between the US and China are reportedly being patched up, G7 allies have recently vented anger at the US president's hardline position, especially over steel and aluminum tariffs, setting the scene for a heated debate when the global summit kicks off in Quebec on Friday.

Investors may look for more solid proof that trade disputes are on the mend, especially after it was reported that Treasury Secretary Steven Mnuchin asked Trump to repeal levies against Canada.