By Mark DeCambre, MarketWatch , Anneken Tappe
Italy's FTSE MIB end almost 4% lower
Europe's pan-European stock benchmark ended Friday's session as
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% at
the lows as investors dumped bank shares.
What are markets doing?
Italy's FTSE MIB Index ended 3.7% lower to 20,711.70, its worst
daily drop since late June 2016, according to FactSet. On the week,
Italy's index dropped 4.8%, making it its worst week since
February. The index is down 4.2% in the quarter.
The mood infected the rest of Europe, with Germany's DAX 30
closing 1.5% lower at 12,246.73. For the week, German index fell
about 0.5%, the gauge declined by 1% for the month and 0.5% for the
quarter.
France's CAC 40 ended 0.9% lower at 5,493.49, finishing the week
flat, but gaining 1.6% for the month and 3.2% over the past three
months, marking its best quarter since the third quarter of 2017,
according to Dow Jones Market Data.
The U.K.'s FTSE 100 slipped to finish the session down 0.5% at
7,510.20. The U.K. stock benchmark still managed to end the week
0.3% higher, with a monthly gain of about 1.1% and a quarterly
return of about 1.7%.
The pan-European Stoxx Europe 600 , meanwhile, gave up 0.8% and
closed Friday at 383.18. For the week, the widely watched equity
benchmark finished 0.3% lower. For September, the index rose 0.2%
and climbed 0.9% for the quarter.
The euro
(http://www.marketwatch.com/story/dollar-climbs-as-euro-drops-under-italian-budget-pressure-2018-09-27)
slipped to $1.1609, compared with $1.1643 late Thursday in New
York, while the British pound was changing hands at $1.3041, 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 jumped higher, last
to yield 3.142% after trading at 2.910% Thursday. 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.
Don't miss:Italy's budget turmoil: Here's what it will take to
rattle global markets
(http://www.marketwatch.com/story/italys-budget-turmoil-heres-what-it-will-take-to-rattle-global-markets-2018-09-28)
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 had 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 Brussels 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
(https://www.bloomberg.com/news/articles/2018-09-28/italy-on-risky-path-eu-warns-as-bank-stocks-suspended-in-milan).
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 0.9%, HSBC Holdings PLC (HSBA.LN)
(HSBA.LN) closing 1.8% lower and shares of Banco Santander SA
(SAN.MC) (SAN) and BNP Paribas SA (BNP.FR) both sliding more than
3%.
Among the few gainers, shares of SAAB AB (SAAB-B.SK) jumped more
than 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 15:16 ET (19:16 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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