UKX FTSE 100 Index

By Mark DeCambre and Barbara Kollmeyer, MarketWatch

Wobble for Wall Street also weighs; ASML drives up chips

Europe's main equity benchmark fell into the red on Wednesday, a day after the best session since early April, as hand-wringing around faltering negotiations between the European Union and the U.K. over a trade deal to exit from the trade bloc continued.

What are markets doing?

The pan-European Stoxx Europe 600 fell 0.2% to 364.31 (http://www.marketwatch.com/story/european-stocks-see-bounce-but-on-track-for-big-weekly-declines-2018-10-12), a day after notching its best daily climb since April 5, according to FactSet data. The U.K.'s FTSE 100 rose 0.3% to 7,077.50.

Germany's DAX 30 slipped 0.3% to 11,742.42, while France's CAC 40 advanced by 0.2% to reach 5,160.24, following its best day since early April.

Italy's FTSE MIB Italy index was down 0.8% at 19,544.58, after registering its best daily gain since Sept. 10 when the index jumped 2.3%.

The euro slipped to $1.1533, compared with $1.1577 late Tuesday in New York. The British pound was meanwhile changing hands at $1.3115, down from $1.3185 late Tuesday.

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 is driving the market?

The pound slid after a reading of U.K. inflation showed an annual rise of 2.4% last month, the Office for National Statistics said, a lower rate than the 2.7% recorded a month earlier and the 2.5% predicted by economists polled by The Wall Street Journal. However, wage growth hit 3.1% in the three months through August, and wholesale prices.

European investors were mostly focused on U.K. Prime Minister Theresa May's "moment of truth (https://www.politico.eu/article/brexit-deal-moment-of-truth-postponed-theresa-may-donald-tusk-dominic-raab-michel-barnier/)," as European Council President Donald Tusk has described a meeting in Brussels later today to try to break an impasse in Britain's talks to extricate itself from the EU with a trade agreement in hand.

In Brussels, a highly anticipated European Union summit is on the schedule, with U.K. Prime Minister Theresa May on the docket to speak at 1 p.m. Eastern (7 p.m. local time).

Market participants are watching for whether the November emergency Brexit summit will go ahead. The perception of May's speech could also have implications back in the U.K., as voices suggestion a vote of no confidence have become louder earlier in the week.

A so-called no-deal scenario (http://www.marketwatch.com/story/with-no-deal-brexit-risk-on-the-rise-analysts-see-uncertain-path-for-pound-2018-10-16) is looking increasingly likely after Tusk on Tuesday said he harbored "no grounds for optimism (https://www.bbc.co.uk/news/uk-politics-45871254)" which could roil eurozone markets and produce sharp swings in the British pound.

European investors also are following developments in Italy's government, which Monday drafted a 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 clash 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.

What are strategists saying?

"Over the next few days investors will be keeping a very close eye on the EU summit which could provide some direction on Brexit. With a deadlock on the Northern Irish border issue seen as a major obstacle in Brexit talks, there is little hope for a breakthrough at the EU summit," wrote Lukman Otunuga, research analyst at FXTM, in a Wednesday note.

"If the summit concludes with no real progress made on [negotiations], this simply raises the risk of a no-deal Brexit outcome. Given the pound is extremely sensitive to Brexit headlines, such a scenario could send the currency collapsing like a house of cards," he concluded.

What stocks are moving

Dutch-based Chip-equipment maker ASML Holding NV (ASML.AE) shot up nearly 4% after results that showed profit beating forecasts, which lifted shares of STMicroelecronics NV (STM) more than 2%. The tech equipment was the best-performing sector behind drug stocks.

Danone SA (BN.FR) slid more than 4% after the French food producer reported a drop in sales (http://www.marketwatch.com/story/danone-sales-fall-guidance-confirmed-2018-10-17), even as it confirmed guidance.

The biggest decliner in the Stoxx 600 was Fresenius Medical Care AG & Co. (FMS) , which slid 17% after the health care group cut its targets for 2018 (http://www.marketwatch.com/story/fresenius-medical-care-cuts-view-as-income-falls-2018-10-17) as it reported an 8% fall in third-quarter net income.

(END) Dow Jones Newswires

October 17, 2018 09:25 ET (13:25 GMT)

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