Europe stocks mostly higher, but Italy falters

Europe stocks mostly higher, but Italy falters

Fiat surges on deal to sell auto-parts unit for €6.2 billion

European stocks saw modest gains on Monday, but Italian stocks gave up an earlier run higher as investors remained nervous about budget wrangling between that country and the European Union.

Helping out sentiment was a second strong day of gains for Chinese stocks, as officials there continued to provide positive comments to support the market.

What are markets doing?

The Stoxx Europe 600 SXXP, -0.04% rose 0.1% to 361.78, after a modest gain on Friday, but a 0.6% rise for the week.

Italy’s FTSE MIB Italy index I945, -0.58% turned lower as the session went on, falling 0.4% to 19,008.07, while the German DAX 30 DAX, +0.05% gained 0.3% to 11,588.76 and France’s CAC 40 PX1, -0.17% was flat at 5,087.74. The U.K.’s FTSE 100 UKX, +0.42% added 0.7% to 7,096.46. Spain’s IBEX 35 IBEX, -0.53% fell 0.4% to 8,898.50.

The euro EURUSD, -0.3040% fell to $1.14800, from $1.1514 seen late Friday in New York. The pound GBPUSD, -0.7424% slid to a nearly 3-week low around $1.2968, from $1.3066 late Friday.

What is driving the market?

Italian stocks and bond prices were gaining after Moody’s Investors Service downgraded Italy’s sovereign debt rating by one notch to Baa3 late on Friday, just one rung above sub-investment grade, or junk. Moody’s gave Italy a stable outlook, meaning it was unlikely to cut the country’s debt rating again soon.

Markets have been roiled over the past few weeks on worries about a budget battle between Italy and the European Union. An Italian government source told Reuters over the weekend that the EU is expected to reject the budget proposal on Tuesday, asking the government to go back to the drawing board. The EU has pushed back on Italy’s budget plan, which includes a budget deficit of 2.4% for next year from a current 1.8%.

Economy Minister Giovanni Tria and Prime Minister Giuseppe Conte tried, but failed over the weekend, to get the deficit target whittled down, that source said. Italy has a Monday deadline to explain why its budgetary targets are breaching EU fiscal rules. On Monday, Italy’s leadership said it was committed to the euro.

Providing some support for stocks globally, China’s Shanghai Composite Index SHCOMP, +4.09% saw its biggest one-day gain in more than 2 years as officials continued to make comments aimed at lifting investor confidence in financial markets.

On the economic front, the European Central Bank will hold a meeting on Thursday, and investors will be watching for further details as the ECB moves closer to winding down its asset purchases in December.

In the U.K., Prime Minister Theresa May is due to update members of parliament on her Brexit deal later in the day amid speculation that she will face a leadership challenge that has been weighing on the British pound.

What are analysts saying?

“Global equity bulls still have an opportunity to re-enter the scene on the back of robust corporate earnings. However, expectations of higher U.S. interest rates, global growth fears and geopolitical tensions all present downside risks to equity markets across the world,” said Lukman Otunuga, research analyst at FXTM, in a note to clients.

“The broad expectation is for Brussels to reject the budget on Tuesday. Whilst this has been on the cards for some time, the markets will want to see what the next chapter is in this unprecedented move. Sanctions could do more damage than good to this delicate situation,” said Jasper Lawler, head of research at London Capital Group, in a note.

What stocks are active?

Fiat Chrysler Automotive NV FCA, +3.76% FCAU, +3.16% shares surged nearly 5% after the auto maker said it would sell its auto-parts unit Magneti Marelli to KKR & Co. KKR, -0.41% -owned Calsonic Kansei Corp. of Japan for €6.2 billion ($7.1 billion).

Shares of Ryanair Holdings PLC RY4C, +4.08% jumped 5%. The budget airline posted a 6% second-quarter net profit fall, but higher sales. The company stuck to lowered full-year guidance it announced three weeks ago.

Royal Philips NV PHIA, -7.54% shares dropped 7%, topping the decliners list after the Dutch technology group reported a fall in third-quarter net profit owing to costs associated with the separation of the lighting business.

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