Stocks Decline on Italian Budget Gloom; Oil Steady: Markets Wrap

(Bloomberg) -- Stocks in Europe dropped at the end of a volatile month and U.S. futures edged lower as political concerns took center stage. Italian bonds plunged the most in almost four months after the country’s populist leaders gained the upper hand in a battle over spending.

The Stoxx Europe 600 Index retreated, led by Italian shares as the country’s benchmark headed for the biggest drop this year. The nation’s yields climbed the most since June 5 after the government set a wider budget deficit than some investors had anticipated. Core European bonds gained and the euro weakened, extending their moves after data showed inflation in the euro area -- after stripping out energy and food costs -- unexpectedly slowed in September.

U.S. equity-index futures edged lower as Treasuries and the dollar inched up. The yen’s slide to the weakest level this year helped stoke Japanese stocks as Asian equities advanced from Sydney to Shanghai. Japanese yields rose after the Bank of Japan paved the way to reduce purchases of super-long bonds. Oil remained on course for the longest run of weekly gains in four months as energy giants to Wall Street banks predicted the return of $100 crude on an impending supply crunch.

Political risks have returned to the top of investors’ agenda at the end of a quarter dominated by central banks and emerging-market crises. In Italy, populists won their battle to fund costly campaign promises, while infighting over Brexit is embroiling the U.K.’s Conservative Party ahead of a conference next week. In the U.S., the confirmation of President Donald Trump’s Supreme Court pick, Brett Kavanaugh, has turned toxic amid allegations of sexual assault. Data on consumer spending, income and inflation may return the focus to the American economy later Friday.

Italy’s planned fiscal deficit of 2.4 percent for 2019 is “a much more expansionary budget that not only risks some push-back by the European Commission, but also may risk seeing both ratings agencies and investors question the Italian government’s debt sustainability,” Viraj Patel, a foreign exchange strategist at ING Bank in London, wrote in a note.

Meanwhile, sterling weakened and gilt yields fell after data showed the U.K. current-account deficit widened more than economists’ expectations in the second quarter, raising fresh questions about the sustainability of the shortfall as Britain heads for Brexit. Emerging-market stocks and currencies declined as the risk-off mood spread.

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These are the main moves in markets:

Stocks

• The Stoxx Europe 600 Index decreased 0.3 percent as of 10:38 a.m. London time.
• Futures on the S&P 500 Index dipped 0.1 percent.
• The MSCI All-Country World Index declined 0.1 percent.
• The U.K.’s FTSE 100 Index fell 0.2 percent.
• Germany’s DAX Index fell 0.7 percent.
• Italy’s FTSE MIB Index sank 2.9 percent on the largest tumble in 20 months.

Currencies

• The Bloomberg Dollar Spot Index gained 0.2 percent to the highest in more than two weeks.
• The euro decreased 0.4 percent to $1.1598, the weakest in more than two weeks.
• The British pound fell 0.2 percent to $1.3057, the weakest in more than two weeks.
• The Japanese yen dipped 0.1 percent to 113.50 per dollar, the weakest in more than nine months.

Bonds

• The yield on 10-year Treasuries declined one basis point to 3.04 percent, the lowest in more than a week.
• Germany’s 10-year yield dipped six basis points to 0.47 percent.
• Britain’s 10-year yield dipped four basis points to 1.553 percent.
• Japan’s 10-year yield gained one basis point to 0.13 percent.
• Italy’s 10-year yield jumped 28 basis points to 3.17 percent, the highest in four weeks on the biggest surge in four months.

Commodities

• West Texas Intermediate crude rose 0.2 percent to $72.25 a barrel.
• Gold increased 0.1 percent to $1,183.48 an ounce.
• Copper declined 0.2 percent to $2.78 a pound, the lowest in more than a week.

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