By Mark DeCambre, MarketWatch
Italy's FTSE MIB is down more than 4% intraday Friday
European stocks fell across the board on Friday after Italy's
antiestablishment government agreed
(http://www.marketwatch.com/story/italy-heads-for-showdown-with-eu-budget-deficit-goal-stretches-to-24-2018-09-28)
to a 2019 deficit projection of 2.4% of gross domestic product,
delivering a budget proposal that is likely to draw the ire of the
European Union.
Italian stocks stood out with a hefty loss of more than 4% as
investors dumped shares of banks.
What are markets doing?
Italy's FTSE MIB Index slumped 4.5% to 20,542.20, putting the
Italian equity benchmark on track to log its worst day since late
January of 2016. Italy's index also is poised for a weekly decline
of 4.4%, but is still likely to register a monthly gain of about
1.5%.
The mood infected the rest of Europe, with Germany's DAX 30 down
1.8% to 12,214.04 and France's CAC 40 off 1.3% at 5,467.34. The
U.K.'s FTSE 100 declined by 0.7% at 7,491.17.
The pan-European Stoxx Europe 600 , meanwhile, gave up 1% to
reach 382.60. For the week, the widely watched equity benchmark was
on pace to end the week down 0.5%, and flat on the month.
The euro
(http://www.marketwatch.com/story/dollar-climbs-as-euro-drops-under-italian-budget-pressure-2018-09-27)
slipped to $1.1581, compared with $1.1643 late Thursday in New
York, while the pound was changing hands at $1.3040, versus $1.3077
in the prior session.
Italian government bonds sold off, sending yields jumping. On
Friday, the yield on the 10-year Italian bond soared to 3.245%
after trading at 2.910% Thursday, according to FactSet data. Bond
prices fall as yields rise.
What is driving the market?
Italy's woes come after the government late Thursday released
official budget targets calling for a 2019 deficit of 2.4% of gross
domestic product, up sharply from 0.8% this year and marking a
significant rise in spending. The gap is seen potentially
triggering downgrades of Italy's credit rating, worsening the
country's debt outlook, and putting Rome and its populist coalition
government on a collision course with Brussels over European Union
fiscal rules.
Rome will submit a draft budget proposal in October and that
would put Italy on a "collision course" with the EU, which is
likely to push back against a budget plan that produces a large
deficit. Drama has been building around the budget release
(http://www.marketwatch.com/story/italian-stocks-tumble-euro-under-pressure-on-budget-worries-2018-09-27).
The budget proposal comes after antiestablishment 5 Star
Movement and the far-right League promised to increase spending to
fulfill campaign promises on basic income, pensions and tax
cuts.
Economy Minister Giovanni Tria, who isn't affiliated with either
of the coalition's main parties, had reportedly been calling for a
1.6% target, in keeping with the EU's budget rules.
(http://www.marketwatch.com/story/italian-stocks-tumble-euro-under-pressure-on-budget-worries-2018-09-27)In
Europe, there was also some not-so-cheery data
(http://www.marketwatch.com/story/eurozone-inflation-rises-further-beyond-ecb-target-2018-09-28)
as the eurozone's annual rate of inflation rose further above the
European Central Bank's target in September.
What are strategists saying?
"This is well above the 2% target set by the EU and investors
fear this situation could lead to a breach of the European Union
budget limits," wrote Carlo Alberto De Casa, chief analyst at
ActivTrades in a Friday research note.
"But rather than the numbers themselves, what worries markets is
the defiance of the populist Italian government. Their decision is
seen as a strong and worrying message sent to the rest of the EU
bloc," he said.
"It is quite a clear message to Bruxelles that this Italian
government is willing to challenge European rules."
Stock movers
Italian banks were badly hit Friday, with trading halted at one
point as those companies hit trading limits, according to
Bloomberg. Shares of UniCredit SpA (UCG.MI) were down 8%, those for
Banco BPM SpA (BAMI.MI) tumbled by nearly 9%, while Unione de
Banche Italiana SpA's stock (UBI.MI) also was down by about 8%,
after falling sharply in Thursday's session.
While Italian banks took the biggest hits, losses were spread
across the sector with heavyweights such as Nordea Bank AB
(NDA.SK), with its stock down 2% and HSBC Holdings PLC (HSBA.LN)
(HSBA.LN) shares falling nearly 2% and those for Banco Santander SA
(SAN.MC) (SAN) and BNP Paribas SA (BNP.FR) each sliding 4%.
Among the few gainers, shares of SAAB AB (SAAB-B.SK) jumped
nearly 8%. On Thursday, Boeing Co. (BA) said it was awarded a deal
to provide next-generation military trainer jets
(http://www.marketwatch.com/story/boeing-wins-contract-to-build-air-force-trainer-jets-for-third-score-in-a-few-weeks-2018-09-28)
to the U.S. Air Force, with SAAB providing some of those parts.
-- Barbara Kollmeyer contributed to this article
(END) Dow Jones Newswires
September 28, 2018 08:45 ET (12:45 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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