Populist and anti-immigrant parties have led European Union governments in Eastern Europe and even in neighboring Austria, but Italy - with the 28-nation European Union bloc's fourth-largest economy and population - would pose a political challenge of another magnitude to the alliance's liberal order.
"It's right to resonate with markets because it tells you about the sense of the wisdom between these negotiating parties", said Chris Scicluna, head of economic research at Daiwa Capital Markets. "I think investors are recognising we are at the beginning of the beginning of this, so it's not anything to make dramatic portfolio moves or any significant bets on", said Katie Nixon, chief investment officer for the wealth management division of Northern Trust in Chicago.
There is still no word on who the parties want to lead the government. Leaked drafts of their government "contract" include provision for a "conciliation committee" to settle expected disagreements.
To help reduce Italy's public debt, which at more than 130% of national output is the highest in the euro zone after Greece's, the joint document calls for the ECB to forgive €250 billion of Italian benchmark BTP bonds bought under the bank's so-called "quantitative easing" programme.
USA bond yields have risen after data this week showed a solid rise in US retail sales, suggesting the USA economy is on a stronger footing in the second quarter.
The 39-page draft, obtained by Huffington Post Italia, reflected the difficulties the two pre-election rivals face in finding the resources needed to pay for promises they made to their voters during the campaign.
The League has promised to introduce a flat tax rate of 15%, which would tax revenues by some 80 billion euros (RM376 billion) per year, while 5-Star has pledged new welfare payments for the poor costed at around 17 billion euros (RM80 billion). In recent days, Mr Salvini has been trying to push Mr Di Maio towards a more confrontational attitude with regard to Brussels on everything from the single currency to budget rules and migration policy.
Italian far-right leader Matteo Salvini launched a broadside at the European Union as he closed in on a coalition government deal with the anti-establishment Five Star Movement on Wednesday, saying that he would rather be a "barbarian than a slave" to Brussels.
Sterling gave up earlier gains after the United Kingdom government dismissed a media report that Britain wanted to stay in the European Union's customs union after Brexit. The sanctions have had a major knock-on effect on the Italian economy, as Russia is a top importer of Italian products and one of the top European tourist destinations for Russian travellers. He declined to comment on the outcome of the coalition talks.
In a meeting with Mattarella on Monday, 5-Star proposed little-known law professor Giuseppe Conte, but the League has not yet given its go-ahead, a source in the president's office said.
Both parties have a history of Euroscepticism.
It is still far from clear whether Five Star and the League are prepared to go all the way - and in fact the bluster on the euro may simply be the product of a political compromise in their negotiations that will never translate into policy. They also share an anti-establishment sentiment that has taken root in Italy but which has global parallels such as Britain's vote to leave the European Union and the United States election of President Donald Trump.
Both parties plan to consult supporters over the weekend to see if they back the government pact. The policy program will probably be published on Thursday, 5-Star said.
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