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Eurozone stocks retreat on Italy woes, China slowdown
LONDON, Oct 20, 2018 (BSS/AFP) – Eurozone equities slid Friday after
Brussels slammed Rome over its 2019 budget plans, with sentiment hurt also by
weak Chinese growth, poor French corporate news and rising global interest
rates, dealers said.
Milan’s stock market slipped after the European Commission formally warned
Italy late Thursday that its budget plans for 2019 were a serious concern,
demanding “clarifications” over Rome’s “unprecedented” deviation from EU
rules.
“Italy is headed for a showdown with Brussels and I am not sure they have
much to lose,” Manulife equities head David Hussey told AFP.
– Avoid ‘loss of Italy’ –
“Given how damaging Brexit is to the EU project, a loss of Italy would be
devastating and to be avoided at all costs — hence I think (that) Italy’s
hand is quite strong.”
However, Italy is facing higher borrowing costs as investors sell off its
bonds. In the secondary market, the yield on 10-year government bonds reached
3.726 percent, its highest rate since 2014.
Italy’s populist government has submitted its draft 2019 budget to the
European Commission in which it laid out plans to increase spending and end
the austerity policies of recent years, despite deficit warnings.
Italy’s deficit is now projected at 2.4 percent of GDP, far higher that
the 0.8 percent estimate given by the earlier centre right government.
Brussels says Rome needs to cut the deficit in order to begin reducing its
massive debt, which exceeds 130 percent of annual economic output — way
above the EU’s 60 percent ceiling.
Paris stocks were weighed down by weak outlooks from telecoms group
Bouygues and tyre maker Michelin.
London, however, gained after upbeat state borrowing data.
On Wall Street the Dow index also posted gains at the opening bell, after
losing 1.3 percent on Thursday, with a number of strong corporate results
bolstering sentiment.
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– ‘Hard to adapt’ –
But worries continue on several fronts, analysts said, including an
expected series of Federal interest rate rises.
“Many investors have not experienced a rising rate cycle and will find it
hard to adapt”, said Hussey at Manulife.
Investors fret over rising borrowing costs because they impact on loan
repayments for both businesses and individuals — and affect consumers’
disposable incomes.
Earlier Friday, Asian stock markets traded mixed, with Shanghai bouncing
back from early losses despite data showing Chinese economic growth slowed to
its weakest level in nine years.
The world’s second largest economy expanded 6.5 percent on-year in July-
September as a campaign to tackle mounting debt took its toll — alongside
trade frictions with the US.
The growth figure marked the worst performance since the start of 2009.
Shanghai equities nevertheless finished the week with a rally after a rare
joint intervention by some of China’s top financial officials.
However the pronounced slowdown weighed on markets elsewhere because China
is a crucial driver of global economic growth.
“The Chinese economy is slowing — but that’s down to a deleveraging
process and concerns about trade and a global slowdown, as interest rates
rise,” CMC Markets analyst Michael Hewson said.
Oil prices rebounded after Thursday’s sharp losses caused by a surprise
jump in US energy stockpiles.
– Key figures around 1330 GMT –
Milan – FTSE MIB: DOWN 0.5 percent at 18,979.80 points
Frankfurt – DAX 30: DOWN 0.4 percent at 11,538.98
Paris – CAC 40: DOWN 0.8 percent at 5,077.67
London – FTSE 100: UP 0.3 percent at 7,047.63
EURO STOXX 50: DOWN 0.2 percent at 3,206.78
New York – Dow Jones: UP 0.2 percent at 25,424.00
Tokyo – Nikkei 225: DOWN 0.6 percent at 22,532.08 (close)
Hong Kong – Hang Seng: UP 0.4 percent at 25,561.40 (close)
Shanghai – Composite: UP 2.6 percent at 2,550.47 (close)
Euro/dollar: UP at $1.1468 from $1.1453 at 2100 GMT
Pound/dollar: UP at $1.3041 from $1.3018
Dollar/yen: UP at 112.44 from 112.21 yen
Oil – Brent Crude: UP 83 cents at $80.12 per barrel
Oil – West Texas Intermediate: UP 50 cents at $69.15
BSS/AFP/HR/1000