By Will Horner 

European stocks slipped Friday, with Italian markets dragged lower by a simmering confrontation between Italy and the European Union over the nation's proposed budget, while shares in China soared following soothing comments from officials in Beijing.

The Stoxx Europe 600 fell 0.13% by afternoon trade, with the auto and parts subsector falling hardest, down 2.5%.

U.S. futures were up after a bruising day Thursday. In premarket trade, the S&P 500 and the Dow Jones Industrial Average were up 0.27% and 0.42% respectively.

Shares in PayPal were up 7.4% in premarket trade after the company boosted its outlook for the fourth quarter.

In Asia, the Shenzhen A Share and the Shanghai Composite were both up 2.6% after an intervention from regulators that calmed investors following disappointing Chinese economic data that initially rattled markets. The Nikkei fell 0.6%.

Dragging the Stoxx Europe 600 lower were European tire manufacturers who were hit hard after Michelin lowered its outlook for the year and warned that a decline in European and Chinese sales was set to continue into the fourth quarter.

Shares in the French tire-maker fell 8%, while shares in its German counterpart Continental were also dragged down by the warning, falling nearly 5%.

Overvalued equity markets coupled with trade war fears, rising oil prices and concerns over future U.S. monetary policy were prompting a selloff, said Peter Dixon, global financial economist at Commerzbank.

"Under those circumstances, I think if we saw one of the dominoes fall, one of the markets tip over, then there are fears of contagion," he said.

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 0.83%. The yield on the Italian 10-year note was up around 0.1% at 3.75%, according to Tradeweb. 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 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 in the spotlight due to the dispute between Washington and Riyadh surrounding the disappearance of Saudi journalist Jamal Khashoggi.

In commodities, Brent crude oil was up nearly 1% and gold was up 0.25%.

(END) Dow Jones Newswires

October 19, 2018 09:33 ET (13:33 GMT)

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