The US dollar and stocks gained yesterday, but Italy’s government bonds, European stock markets and the euro were all slammed by deepening worries about the Italian budget and its new higher-than-expected deficit target.
Rome on Thursday targeted a budget deficit of 2.4 per cent of gross domestic product (GDP) for the next three years, marking a victory for party chiefs over economy minister Giovanni Tria, an unaffiliated technocrat.
The deficit, though within the prescribed EU limit of 3 per cent of GDP, is a concern for investors who fear the anti-establishment government is not committed to tackling its huge debt load. Italy’s debt-to-GDP ratio stands at about 130 per cent, the highest in the eurozone behind Greece.
The pan-European FTSEurofirst 300 index lost 0.75 per cent. Germany’s DAX was last down 1.52 per cent. Shares in Italian banks fell as much as 8.5 per cent and closed 7.26 per cent lower.
Italian government bonds were set for their worst day since a brutal May 29 sell-off, up 34-42 basis points across the curve.
The euro fell 0.19 per cent to $1.1617. MSCI’s gauge of stocks across the globe shed 0.12 per cent.
The picture was rosier on Wall Street, where tech shares also got a big boost from Nvidia Corp, which rose after Evercore raised the chipmaker’s price target to $400.
The Dow Jones Industrial Average rose 43.24 points, or 0.16 per cent, to 26,483.17, the S&P 500 gained 3.12 points, or 0.11 per cent, to 2,917.12 and the Nasdaq Composite added 7.18 points, or 0.09 per cent, to 8,049.14.
In Asia earlier, Japan’s Nikkei stock index raced to a 27-year high on renewed optimism over the global economy and hopes of a boost to its exporters’ earnings from a weaker yen. The index closed 1.36 per cent higher.
The dollar index rose 0.17 per cent.
After the Federal Reserve raised interest rates on Wednesday – the third increase this year – Fed Chair Jerome Powell said that the United States does not face a large chance of a recession in the next two years and the central bank plans to keep raising rates gradually.
Benchmark 10-year notes last rose 4/32 in price to yield 3.0426 per cent, from 3.055 per cent late on Thursday.
Energy stocks also got a boost from oil prices, with Brent crude climbing to a fresh four-year high as United States sanctions on Tehran squeezed Iranian crude exports.
United States crude yesterday rose 1.58 per cent to $73.26 per barrel and Brent was last at $82.89, up 1.86 per cent on the day.