EUROPE MARKETS: Italy's Stock Market Slumps As Budget Drama Looms, Weighs On Broader European Bourses
October 19 2018 - 8:32AM
Dow Jones News
By Mark DeCambre, MarketWatch
Italy's FTSE MIB looks set for its fourth straight weekly
skid
Italian stocks fell sharply on Friday as the drama around the
country's budget plan intensified and pushed up its sovereign bond
yields amid worries that a market-disrupting conflagration between
the European Union and Rome won't be averted.
What are markets doing?
Italy's FTSE MIB Italy index was down 0.8% at 18,940, poised for
a weekly skid of 1.6% and its fourth straight weekly slide,
representing the longest such decline since a five-week retreat
ended June 8, according to FactSet data.
Italian political turmoil was dragging the pan-European Stoxx
Europe 600 down 0.2% to 360.67
(http://www.marketwatch.com/story/european-stocks-see-bounce-but-on-track-for-big-weekly-declines-2018-10-12),
but the index was nursing a weekly gain of about 0.4%. The U.K.'s
FTSE 100 was bucking the trend, up 0.3% to 7,046.01, amid Britain's
own unresolved Brexit woes. The stock gauge was on track for a
weekly gain of about 0.4%.
Germany's DAX 30 , meanwhile, was trading 0.5% lower at
11,529.10, poised for a slight weekly advance of about 0.1%.
France's CAC 40 fell 0.8% to 5,075.39, tracking a weekly decline of
0.4%, which would mark its fourth consecutive weekly drop.
The euro last traded at $1.1469, compared with $1.1453 late
Thursday in New York. The British pound was up at $1.3033 from
$1.3018 in the previous session.
Read: With 'no-deal' Brexit risk on the rise, analysts see
uncertain path for pound
(http://www.marketwatch.com/story/with-no-deal-brexit-risk-on-the-rise-analysts-see-uncertain-path-for-pound-2018-10-16)
What's driving the market?
The yield on the 10-year Italian government bond traded at
3.777%, its highest since 2014, as the EU cautioned Rome that its
budget draft would run afoul of fiscal rules in place for member
countries. Meanwhile, the yield for 10-year German paper fell to
0.402%, hitting its lowest since September. Investors tend to turn
to German bonds, or bunds, as a haven during periods of heightened
uncertainty in the eurozone because the country is the largest
economy in that economic bloc. Investors pay close attention to the
spread between bond yields for signs of stress. Bond prices rise as
yields fall, and vice versa.
Earlier in the week, Italy's government approved a draft budget
law for next year, confirming a set of expansionary measures that
could lead to a fast-rising deficit.
The planned measures included in the draft law are set to widen
the budget deficit to 2.4% of gross domestic product. EU officials
fear the real deficit could be much higher than 2.4%.
The full draft budget law will be submitted to the Italian
parliament by Saturday.
A clash between Rome and Brussels could further rattle European
markets if it intensifies, market participants have warned.
Investors were also watching U.K. Prime Minister Theresa May's
efforts to forge a new trade and customs pact with the EU as
Britain is set to relinquish its membership in March. On Thursday,
May indicated that an extension of the U.K.'s current EU status
could come into play because of unresolved differences between the
parties.
European traders also were keeping an eye on tensions between
the U.S. and Saudi Arabia as Treasury Secretary Steven Mnuchin on
Thursday announced that he was pulling out of an investment
conference in Riyadh
(http://www.marketwatch.com/story/mnuchin-to-skip-saudi-conference-as-us-weighs-more-time-for-khashoggi-probe-2018-10-18)
in response to the disappearance of Saudi journalist Jamal
Khashoggi, a U.S. resident.
What are strategists saying?
"While there was no clear trigger behind this shift, renewed
concerns around Italy's budget, disappointing earnings from
industrial firms, still-elevated U.S. bond yields, and the prospect
of a fallout in U.S.-Saudi relations may have all contributed,"
wrote Marios Hadjikyriacos, analyst with brokerage XM, in a Friday
research note.
What stocks are active?
Auto stocks led the decliners, with Daimler AG (DAI.XE) down
3.8% after a profit warning. Volvo AB (VOLV-B.SK) off 3.8% even as
it reported an earnings beat
(http://www.marketwatch.com/story/volvo-earnings-beat-on-strong-truck-demand-2018-10-19)and
strong truck demand.
Bouygues SA (EN.FR) was another loser, down over 10% after
cutting its 2018 outlook
(http://www.marketwatch.com/story/bouygues-cuts-2018-outlook-2018-10-19).
(http://www.marketwatch.com/story/bouygues-cuts-2018-outlook-2018-10-19)Atlas
Copco AB (ATCO-A.SK) warned that demand has weakened economic
uncertainties
(http://www.marketwatch.com/story/atlas-copco-warns-demand-has-weakened-2018-10-19)that
has seen customers hold off on investment decisions.
(http://www.marketwatch.com/story/bouygues-cuts-2018-outlook-2018-10-19)
(END) Dow Jones Newswires
October 19, 2018 09:17 ET (13:17 GMT)
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