European Stock Slip as Chinese Shares Rebound
October 19 2018 - 5:51AM
Dow Jones News
By Will Horner
European stocks slipped Friday, with Italian equities falling
hardest, dragged down by a simmering confrontation between Italy
and the European Union over the nation's proposed budget.
The Stoxx Europe 600 fell 0.5% in morning trade, with the auto
and parts subsector falling hardest, down 2.8%.
In Asia, the Shenzhen A Share and the Shanghai Composite were
both up 2.6% after disappointing Chinese economic data that
initially rattled markets. The Nikkei fell 0.6%.
U.S. futures were broadly flat after a bruising day
Thursday.
In Europe, the clash between Italy's populist coalition
government and the European Commission continued to spook
investors. The two parties are at odds over Italy's proposed
budget.
In a letter published Thursday, the European Commission said
Italy's spending plans were "unprecedented" and a "serious
concern."
The Italian FTSE MIB was down 1.22%. The yield on the Italian
10-year note was up 0.1% at 3.778%, the highest since early 2014,
according to Refinitiv. Yields move inversely to prices.
Investors are concerned about a potential downgrade in Italy's
credit rating, said analysts at UniCredit in a note to clients.
"We see a very low chance that Moody's will publish the result
of its rating review as early as today, but this remote risk might
nevertheless have contributed" to the spread between Italian bonds
and their German counterparts widening on Thursday, they said.
A rebound in Chinese stocks Friday came after an intervention
from regulators that calmed investors despite disappointing
economic data.
China's central bank governor and banking and securities
regulators said recent volatility in Chinese stocks didn't reflect
the nation's economic fundamentals and "stable financial
system."
That reassurance boosted Chinese assets, despite data released
Friday that showed China's third-quarter GDP had slowed to 6.5%
from the previous quarter's 6.7%. Growth in industrial output and
consumption also slowed, but exports held.
Investors in Asia are still nervous of the brewing trade war
between the U.S. and China and the yuan's steady depreciation, said
Sophie Huynh, cross-asset strategist at Société Générale, but she
added that looking ahead, Chinese equities still have something to
offer.
"We think that China is a medium-term bullish story and we would
keep Chinese assets in portfolios," Ms. Huynh said.
"The gradual integration of China equities and bonds in global
benchmarks acts as a support, while we also believe that China
could play a role of anchor for emerging markets."
In the U.S., stocks fell sharply Thursday. The Dow Jones
Industrial Average fell more than 300 points, or 1.3%. The S&P
500 and the Nasdaq Composite fell 1.4% and 2.1%, respectively.
The selloff accelerated after news that Treasury Secretary
Steven Mnuchin had pulled out of an investment conference in Saudi
Arabia.
The coming conference had been the focus of attention due to the
continuing dispute between Washington and Riyadh surrounding the
disappearance of Saudi journalist Jamal Khashoggi.
The dollar was broadly flat, according to the WSJ dollar index,
which tracks the greenback against a basket of 16 currencies.
In commodities, Brent crude oil was up 0.2% and gold was roughly
flat.
(END) Dow Jones Newswires
October 19, 2018 05:36 ET (09:36 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.