By Eamon Quinn
Global stockmarkets were yesterday squeezed between “hysterical” comments from the Italian government and a flare-up of trade fears over China as growth stocks such as technology shares came under renewed pressure.
Europe’s major stock indices reflected further weakness for the second week — including the Ftse-100 which fell by a further 1% — as the standoff between Italy’s new populist government and the EU over its proposed first budget showed no sign of abating.
Rome stepped up the rhetoric with a direct challenge to the EU.
Italian deputy prime minister Matteo Salvini said Europe’s real enemy was Jean-Claude Juncker and the Brussels bureaucracy that pushes budget restrictions and open borders.
Sitting alongside French nationalist Marine Le Pen at an event in Rome, Salvini said that next year’s European parliamentary elections will be a showdown between those focused on creating jobs and those more concerned with imposing austerity like Juncker, the president of the European Commission, and Pierre Moscovici, the EU’s economic policy chief.
“We are against the enemies of Europe, Juncker and Moscovici, shut away in the Brussels bunker,” said Salvini. “The politics of austerity of the last few years has increased Italian debt and impoverished Italy,” he said.
Italian bonds rose and the euro fell against the dollar. However, the euro was little changed against a weaker sterling, at 87.87p, as hopes for some sort of early breakthrough in the Brexit talks between the UK and the EU faded somewhat.
Italian “sabre rattling” had put the focus on European bond markets “and the thorny relationship between Italy and its European partners”, said Fiona Cincotta, senior market analyst at City Index.
“Italy’s new coalition government seems to be taking a page out of the Donald Trump playbook and issuing hysterical statements as part of a legitimate negotiating ploy,” Cincotta said.
“Joint deputy prime minister Matteo Salvini has been attacking EU officials and speculators today, accusing them of undermining Italy’s economy even as his government seeks to come to some agreement on its budget with Brussels,” she said, adding that Salvini had again hinted it could leave the eurozone.
“Once again Italian worries are giving investors the excuse to hit European indices,” said Chris Beauchamp, chief market analyst at online trader IG.
Meanwhile, US stocks were hit by a testy exchange between US secretary of state Michael Pompeo and Chinese officials during a meeting in Beijing.
“China and the US are headed toward a confrontation,” said Alicia Levine, chief strategist at BNY Investment Management.
“What I really worry about is not so much the real effect, but the knock-on effect,” she said. In London, leading retail shares got a boost from a plan by clothes retailer French Connection, in which Mike Ashley has a stake, to put itself up for sale.
“Mike Ashley’s apparent desire to buy up the entire UK high street, if reports are to be believed, has delighted investors in French Connection, and while it has bolstered Next by almost 2% as well the strategic rationale is hard to find,” Beauchamp at IG said.
- Additional reporting Bloomberg