Investor Alert

Europe Markets

Oct. 2, 2018, 1:38 p.m. EDT

European stocks pare early slide but end lower as fiscal worries cast a shadow

Italian—EU squabbling over budget stokes volatile session

By Barbara Kollmeyer, MarketWatch

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Europe stocks closed out the session lower on Tuesday, dogged by budgetary concerns out of Italy and Greece, along with global growth and trade concerns.

What are markets doing?

The Stoxx Europe 600 (STOXX:XX:SXXP)  bounced off its session nadir, but closed off 0.5% to 381.94, following Monday’s rise of 0.2%.

Among the weaker bourses, Greece’s ASX Composite (ATHENS:GR:GD)  slid 1.5% to 681.17. Italy’s FTSE MIB Italy index (BORSA:IT:I945)  finished 0.2% lower at 20,562.31, paring an earlier loss of over 1%.

Germany’s DAX 30 (XEX:DX:DAX)  fell 0.4% to end at 12,287.58, while France’s CAC 40 (PAR:FR:PX1)  dropped 0.7% to 5,467.89. The U.K.’s FTSE 100 (FTSE:UK:UKX)  slipped 0.3% to 7,474.55, marking its third straight loss.

The euro (XTUP:EURUSD)  slipped to $1.1535 from $1.1578 late Monday in New York. The pound (XTUP:GBPUSD)  slid to $1.2971 from $1.3040.

What is driving the market?

Fears of a brewing eurozone crisis got a fresh reboot on Tuesday, with Prime Minister Giuseppe Conte reaffirming the country’s commitment to the euro after a lawmaker for the ruling Lega party, startled markets by saying Italy might be better off outside.

Italy Economy Minister Giovanni Tria got a cold reception on Brussels on Monday as he shopped the budget-deficit target that skirts EU rules. The government’s call for a higher-than-expected deficit target has been rattled the market in recent days. Italy must submit a completed draft budget to EU officials by mid-October.

And Greek stocks were under pressure after that government submitted its own 2019 draft budget to parliament, with two different scenarios, hinging on whether the government carries through with pension cuts, which it has been trying to convince creditors aren’t needed.

Elsewhere, U.K. Prime Minister Theresa May was taking heat for her plan to curb low-skilled immigrants once Brexit goes through, put her at loggerheads with Juncker as well, with a debate fired up in European parliament . May is due to speak at the Conservative party conference on Wednesday. On the data front, the U.K. construction sector grew at the slowest pace in six months .

Europe stocks also fell on a pullback across global markets as investors fretted anew over trade, with fresh concerns about the U.S./China trade stalemate. Adding to that were concerns that the International Monetary Fund will cut global growth forecasts in updated numbers next week.

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What are strategists saying?

“What is more likely happening here is a flexing of muscles and threats in the hope of pushing the limits of what the EU will allow, and the base case remains that this doesn’t ultimately result in any real change to the present relationship,” said David Cheetham, chief market analyst at XTB Limited, in a note to clients.

“Europe is dogged by concerns the Italian government will do little to stabilize the common currency and although the tone of dialogue over Brexit appears to be improving, there is still doubt that agreement can be reached—or that Theresa May can survive a leadership challenge,” said James Hughes, chief market analyst at AXI Trader.

Stock movers

Bank stocks took the biggest hits on Tuesday, with Credit Suisse AG (SWX:CH:CSGN)  shares finishing down by 1.8% and BBVA SA (NYS:BBVA)   (MCE:ES:BBVA)  shares declining by 2.7%. Shares of Nordea Bank ABP (HEL:FI:NDA.FI)  closed 3.7% lower.

Ferguson PLC (LON:UK:FERG)  was a top decliner, off 6.8% after the building materials supplier reported struggles in its U.K. businesses and announced $72 million in restructuring charges.

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