➤ European stocks drop on Italy budget concerns.

➤ 10-year Treasury yield drops 4 basis points to below 2.29%.

➤ Trump says U..S "not ready" to make trade deal with China.

➤ Renault expresses interest in Fiat's merger proposal.

U.S. government bond yields dropped and futures pointed to a lower opening on Wall Street following a decline in stocks in Europe, where concerns of a budget feud between Italy and the EU weighed on markets.

The Stoxx Europe 600 equity index dropped 0.5% as of 6:30 a.m. ET as markets continued to assess the results of the European Parliament elections over the weekend. The biggest parties in the chamber, the center-right European People's Party and the center-left Socialists and Democrats, failed to secure a combined majority but remained a dominant force, while green and liberal parties saw a rise in support and populists led in a number of countries, including Italy.

Italian Deputy Prime Minister Matteo Salvini said his far-right League party's win in the elections reflects public support for tax cuts and changes to the EU's budgetary rules. The European Commission is reportedly considering a disciplinary action of up to €3.5 billion against Italy for its failure to reduce debt levels.

The results raise political uncertainty and could pave way for early elections for the country, according to ING Research. Italian sovereign bonds fell, with 10-year yields adding 13 basis points to nearly 2.72%, while yields on German Bunds with the same maturity dropped 2 basis points to negative 0.15%.

Italian bank stocks dropped amid the spike in bond yields, dragging the FTSE MIB index down 0.9%. Elsewhere in Europe, France's CAC 40 index dipped 0.6% while Germany's DAX fell 0.5%, with shares in Deutsche Bank AG falling 2% amid reports that the bank is considering a potential capital increase. The FTSE 100 dropped 0.1% as the U.K. markets returned from a holiday.

Futures for the S&P 500 and the Nasdaq 100 dropped more than 0.2% amid a weak lead-in from Europe. The yield on 10-year Treasury notes lost 4 basis points to just under 2.29%.

Earlier in Asia, Hong Kong's Hang Seng added 0.4%, while the Shanghai SE Composite gained 0.6%. U.S. President Donald Trump said yesterday Washington is "not ready" to make a trade pact with China and warned that U.S. tariffs on Chinese goods "could go up very, very substantially, very easily."

Japan's Nikkei 225 rose 0.4%, with Nissan Motor Co. Ltd. shares advancing 2.3% and Mitsubishi Motors Corp. gaining almost 6% after their French automotive ally Renault SA expressed interest in the proposed merger by Fiat Chrysler Automobiles NV.

In currencies, sterling traded 0.1% lower against the dollar as the Brexit Party dominated the U.K. in the European Parliament elections, fueling concerns of a hard Brexit, MUFG Bank said in a note. The Brexit Party's lead in the elections came days after Theresa May's resignation as leader of the Conservative party over her failure to deliver Brexit.

A YouGov poll of Conservative party members places former foreign secretary and leading Brexiteer, Boris Johnson, as the front-runner in the race to replace May.

"We believe the U.K. Parliament will prevent a hard Brexit regardless of the bias of the next premier," Standard Chartered wrote in a weekly note.

The euro was broadly steady against the dollar, while the Japanese yen appreciated nearly 0.2%.

Among commodities, Brent crude oil added 0.2% to $70.27 per barrel on the ICE Futures Exchange. Gold slipped 0.1% to $1,288.50 per ounce.

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The day ahead:

9 a.m. ET — S&P Corelogic Case-Shiller HPI (Econoday consensus: 0.2% monthly)

9 a.m. ET — U.S. FHFA house price index

10 a.m. ET — U.S. consumer confidence (Econoday consensus: 129.8)

10:30 a.m. ET — Dallas Fed manufacturing survey (Econoday consensus: 7.0)