European stocks end higher, but Italian budget worries mount

European stocks end higher, but Italian budget worries mount

H&M rallies on results, IG Group tumbles on CEO exit

European stocks ended Thursday’s session slightly higher though Italy’s looming budget announcement weighed on Italian equities and particularly bank shares.

Elsewhere, investors were sidelined, absorbing the latest interest-rate increase by the Federal Reserve.

What are markets doing?

The Stoxx Europe 600 SXXP, -0.30% closed 0.4% higher at 386.38, after Wednesday’s modest gain of 0.3%. Week-to-date, the index is was up 0.5%.

Italy’s FTSE MIB Index I945, -2.89% slumped 0.6% to close at 21,511.07. Germany’s DAX 30 DAX, -0.68% ended up 0.4% at 12,435.59, and France’s CAC 40 PX1, -0.28% closed 0.5% higher at 5,540.41. The U.K.’s FTSE 100 UKX, -0.17% ended the session 0.5% higher at 7,545.44.

The euro EURUSD, -0.3951% slipped to $1.1680 versus $1.1742 late Wednesday in New York, while the pound GBPUSD, -0.1759% was down 0.5% at $1.3103.

What is driving the market?

Italy’s budget proposal is expected at 6 p.m. Eastern on Thursday, but drama was building around the long-awaited event, which could potentially cause a spat between Italy and the European Union. Markets were rattled by reports the budget, to be released by Finance minister Giovanni Tria, could be delayed.

Italian daily La Stampa had previously reported that Tria was ready to resign over budget infighting within the governing coalition, though ministry spokesman denied this, according to a Reuters report. Other reports said the budget will up the deficit to a bigger-than-expected 2.4% of GDP.

Elsewhere, investors appeared reluctant to make big moves, tracking modest gains for U.S. stock futures, after the Fed lifted interest rates for the third time this year and indicated it would raise rates at its December meeting, then three more times in 2019. The Fed also dropped the phrase that its policy remains “accommodative.

On the data front, eurozone manufacturing and consumer sentiment pulled back in September. In Germany, Europe’s largest economy, harmonized consumer price inflation rose to 2.2% year-over-year in September, beating the consensus forecast of 1.9%.

What are strategists saying?

If Italy’s “budget does include a boost to public spending then it reduces the amount of money available for the government to bail out Italy’s troubled lenders, which ultimately makes them a riskier investment,” said Kathleen Brooks, research director at Capital Index. “Thus, Italian bank stocks may continue to come under pressure in the aftermath of this budget.”

“The trade war story continues to apply downward pressure, President Trump defending his protectionist policies against Canada and China in a wide-ranging press conference,” wrote Accendo Markets analysts Mike van Dulken and Artjom Hatsaturjants.

Stock movers

Italian banks weighed on the financial sector, with UniCredit SpA UCG, -6.33% Banco BPM SpA BAMI, -7.85% and Unione de Banche Italiana SpA UBI, -6.61% all ending the session lower, dropping between 0.4% and 2.1%.

IG Group Holdings PLC IGG, -0.08% closed 12.8% lower, among the biggest decliners on the Stoxx Europe 600 after the trading platform announced the immediate departure of Chief Executive Peter Hetherington.

Among the best performers was retailing giant Hennes & Mauritz AB HMB, -0.76% which surged to close 11.1% higher after posting a sales rise and as third-quarter profit beat forecasts.

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