UKX FTSE 100 Index

By Mark DeCambre, MarketWatch

FTSE 100 pulls back as Brexit remains in focus

Italy's benchmark on Tuesday was set for its best day in three weeks, while U.K. stocks lagged behind the broader European market, as brewing political drama continued to result in outsize moves in those spotlighted eurozone regions.

What are markets doing?

Italy's FTSE MIB Italy index was up 1.1% to 19,492.68 and had been up by as many as 1.3%, which would represent its best daily gain since late September according to FactSet data. The U.K.'s FTSE 100 , meanwhile, was down 0.3% to 7,006.43.

The pan-European Stoxx Europe 600 gained 0.3% to finish at 360.46 (http://www.marketwatch.com/story/european-stocks-see-bounce-but-on-track-for-big-weekly-declines-2018-10-12)., while Germany's DAX 30 rose 0.2% to 11,635.85, while France's CAC 40 inched up less than 0.1% to reach 5,097.23.

The euro was flat at $1.158, compared with $1.1580 late Monday in New York. The pound was last changing hands at $1.3197, up from $1.3151 late Monday.

What is driving the market?

Italy's government late Monday approved a draft budget law for next year (http://www.marketwatch.com/story/italys-government-oks-draft-budget-that-would-widen-deficit-2018-10-15), confirming a set of measures that could lead to a fast-rising deficit but heightens a conflict with the European Union over the size and scope of its budget deficit.

The antiestablishment 5 Star Movement and the far-right League have rattled financial markets over the potential for a dust-up between Italy's government and the EU, which could prove disruptive to the integrity of the bloc.

The full draft budget law will be sent to the Italian parliament by Saturday. Lawmakers will need to approve it by the end of the year.

Rome's drafted measures are set to widen the budget deficit to 2.4% of gross domestic product or higher, in defiance of EU rules that require a shrinking deficit. The Italian government said it would raise welfare and pension spending and cut taxes, despite the negative reaction from investors and Brussels to its proposals.

Meanwhile, on Monday, U.K. Prime Minister Theresa May called for "cool, calm heads" as she described Britain's chances of striking a trade pact as it exist from the EU as "still achievable," in a speech in front of parliament.

May believes that a Brexit trade pact is "still achievable," while European Council President Donald Tusk warned in a letter to EU leaders on Monday warned that no-deal, in which no trade agreement is forged as Britain exits from the EU is "more likely than ever before."

A summit of European leaders in Brussels is set for Wednesday where it is hoped that a deal can be reached.

Separately, U.K. wage growth accelerated over the summer at the fastest pace in almost a decade, adding to signs of inflationary pressure, Tuesday data showed (http://www.marketwatch.com/story/uk-wage-growth-fastest-in-almost-10-years-2018-10-16-4485395).

(END) Dow Jones Newswires

October 16, 2018 05:08 ET (09:08 GMT)

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