European equities deflate as investors await Italian government

London - Europe's stock markets slid on Monday as investors awaited the formation of a right-wing coalition government in Italy.

Milan's benchmark FTSE MIB index was the worst performer in Europe, recoiling 0.6%.

Frankfurt, London and Paris each shed about 0.2% in value.

Later on Monday, a deeply eurosceptic far-right party and an anti-establishment group are set to unveil a coalition government agreement and name a new Italian prime minister, ending over two months of political deadlock.

The leaders of the anti-immigrant League party and Five Star Movement will meet the Italian president to share details of a government programme for the eurozone's third largest economy.

"An optimistic start to trade throughout Asia has failed to translate into a strong start in Europe," noted IG Markets analyst Joshua Mahony.

He added: "A right-wing coalition in Italy has done little to boost markets, with Europe failing to follow their Asian counterparts higher despite the prospect of a positive conclusion to US-China trade talks."

Trump trade talks

Investors will be keeping a close eye on the discussions, with President Xi Jinping's top economics official and Vice Premier Liu He visiting Washington.

Hopes that the two sides can avert a trade war were boosted Sunday when US President Donald Trump said he was working with Xi to prevent telecom giant ZTE from going out of business after it was hit by a US sales ban.

The US leader tweeted that he had asked officials to come up with a rescue plan, saying too many jobs were at risk, seeming to offer an olive branch.

"Taken as a hint that the US-China trade dispute might turn out better than markets fear, the news was a small positive, helping underpin sentiment," noted City Index analyst Ken Odeluga.

Most Asia markets rose Monday as investors built on last week's rally, with another healthy lead from Wall Street also providing support.

However, world oil prices retreated from their recent three-and-a-half-year peaks.

Ringgit recovers

Malaysia's ringgit currency recovered from an early sell-off to sit flat, while Kuala Lumpur stocks rose as trading resumed after last week's general election - which saw a shock win for 92-year-old former premier Mahathir Mohamad.

While analysts had expected a sharp drop in equities, they said Mahathir had soothed many concerns by giving key posts to people seen as market-friendly.

"The relatively smooth transition of power for Mahathir Mohamad being sworn in as Prime Minister is a likely catalyst behind the losses in the ringgit being smaller than expected," said analyst Jameel Ahmad at traders FXTM.

Oil extended Friday's losses after last week reaching November 2014 peaks as Trump pulled out of a nuclear deal with key crude producer Iran.

A pick-up in demand and the ongoing output cap by OPEC and Russia are keeping the commodity buoyant.

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