EUROPE MARKETS: Europe Stocks Rebound Amid Hopes Over Italy-EU Budget Resolution
October 03 2018 - 9:12AM
Dow Jones News
By Barbara Kollmeyer, MarketWatch , Donato Paolo Mancini
Banks lead the gainers, Aston Martin shares stall
European markets climbed on Wednesday, driven by hopes that
Italy's budget deficit could be lowered, though concerns about the
country's debt and budget plan lingered.
What are markets doing?
The Stoxx Europe 600 rose 0.6% to 384.40, after a drop of 0.5%
on Tuesday
(http://www.marketwatch.com/story/europe-stocks-under-pressure-as-italy-greek-fiscal-worries-cast-a-pall-2018-10-02).
Regional gains were led by Italy's FTSE MIB index up 1.4% to
20,846.34. On the downside, Greece's ASX Composite showed steep
declines among European benchmarks, off 2.4% to 664.82.
German markets was closed for a holiday, while France's CAC 40
rose 0.7% to 5,503.30, while the U.K.'s FTSE 100 rose 0.6% to
7,515.85.
The euro pared back much of an earlier run higher
(http://www.marketwatch.com/story/euro-rebounds-after-report-italy-will-play-by-eus-budget-deficit-rules-2018-10-03),
trading at $1.1548 from $1.1549 late in New York on Tuesday, while
the pound was flat at $1.2985 from $1.2980.
What is driving the market?
The Italian government officially plans on maintaining its
deficit at 2.4% in the next three years, with further announcements
on the issue are expected later Wednesday. Markets were cheered by
a report in Italian daily newspaper Corriere della Sera
(https://www.corriere.it/politica/18_ottobre_02/segnale-governo-bruxellesdeficit-24-2019-ma-poi-scende-ce01b162-c67f-11e8-8ad0-429d1e46ab5e.shtml?refresh_ce-cp)
that the government's budget deficit target will be set at 2.4% of
GDP in 2019, but decline to 2.2% in 2020 and 2.0% in 2021. That
sent the euro soaring early in the day.
Investors in Italian markets are wary of a so-called "doom
loop," whereby fragile balances between lenders and government
finances come under further strain.
Italian banks have a high exposure to the country's bonds, while
their European counterparts have gradually decreased their
portfolios. The fear is that, if the rhetoric between Italy's
government and the European Union worsens, that pressure could
compound to levels that aren't sustainable.
Yields on Italian 10-year government bonds , also known as BTPs,
were down 7.1 basis points to 3.350%, while the spread with 10-year
German bonds edged lower.
In the U.K.U.K. Prime Minister Theresa May who was delivered the
keynote speech at the Conservative party conference
(http://www.itv.com/news/2018-10-03/theresa-may-keynote-speech-conservative-party-conference/),
stating that the U.K.'s post-Brexit future is "full of promise" and
her Chequers plan was the only one that would work.
What are strategists saying?
"Volatility will remain high until we get the European
Commission's decision, and the rating agency decisions [on Italy]
that'll come later in October," said Mohammed Kazmi, a portfolio
manager at Geneva-based bank Union Bancaire Privée.
Esty Dwek, senior investment specialist at Natixis Investment
Managers, said Italy adds to Europe's problems: "it is the European
wall of worry: you have Brexit, you have Italy, then you have
Turkey, and concerns about contagion to European banks."
What are strategists saying?
Banks led the gainers, notably Italian names such as Banco BPM
SpA (BAMI.MI), which rose 3.5% and Spain's Banco Santander SA
(SAN.MC)(SAN). HSBC Holdings PLC (HSBA.LN) (HSBA.LN) rose 1.2%.
Tesco PLC (TSCO.LN) tumbled nearly 10% after the grocer reported
first-half operating profit that was below expectations
(http://www.marketwatch.com/story/tesco-shares-drop-after-operating-profit-miss-2018-10-03).
Among smaller companies, luxury auto maker Aston Martin tumbled
8% in its debut in London
(http://www.marketwatch.com/story/aston-martin-ipo-values-james-bond-carmaker-at-56-billion-2018-10-03).
(END) Dow Jones Newswires
October 03, 2018 08:57 ET (12:57 GMT)
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