US Stocks Slide as Dollar Extends Gains; Italy's Budget Spooks European Markets
Frankfurt (Sept 28) Global stocks weakened on the final trading day of the third quarter Friday, with a stronger U.S. dollar driving markets in Japan to a three-decade and dictating currency movements around the world, while European shares weakened amid renewed budget turmoil in Italy that has sent bond yield sharply higher.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, traded 0.% higher to hit a fresh three-week high of 95.30 overnight as the euro slipped on news that Italy's anti-European government will seek near-term spending plans that will add billions to its deficit and debt piles. The dollar's gains were also fueled by comments from Federal Reserve chairman Jerome Powell, who told an audience in Washington that "there's no reason to think that the probability of a recession in the next year or two is at all elevated."
U.S. equity futures have been declining alongside the dollar's gains, with contracts tied to the Dow Jones Industrial Average , which has gained around 9% over the quarter, indicating an 82 point slip fall those linked to the broader S&P 500 , which is sitting on a quarterly gain of 7.21%, suggest a 8.25 point decline.
With the yen sliding to 113.50 in overnight trading, and industrial output and retail sales rose more than expected last month, Japan's Nikkei 225 surged more than 1.5% during the Tokyo session, taking the benchmark to its highest level since November 1991 before paring the advance to 1.4% to close at 24,120.04 points to boost its third quarter advance to 8.13%.
Stocks around the Asia region were also firmer heading into the close, with China's Shanghai Composite ending the session 1.1% to the good, a move that trimmed its third-quarter decline to just 0.75%. The region-wide MSCI Asia ex-Japan index was little changed heading into the final hours of trading and is down 2.5% for the three months ending in September.
European stocks were notably lower at the open, however, after Italy's coalition government, which is comprised of anti-EU factions on both the far right and far left of the country's political spectrum, said it would draft a budget that targets a deficit of 2.4% of GDP over the next three years, a figure that is more than triple the previous administration's spending plans and will add billions to Italy's already-staggering €2.3 trillion debt pile.
Italy's FTSE MIB index slumped 4% by mid-day in Milan, with banks leading the decline as the financial sector subindex plunged 8%, the biggest single-day decline in two years, UniCredit SpA, was marked 8.4% lower while domestic rival Intesa Sanpaolo fell 7.7% .
Benchmark 10-year Italian government bond yields spiked 31 basis points to 3.23%. The spike widened the extra yield, or spread, that investors demand to hold triple-B rated Italian paper instead of top-rated German bunds by 20 basis points to a three-week high of 2.77%. Italian 2-year yields rose 30 basis points to 1.12% while the euro fell 0.35% against a firmer U.S dollar to change hands at 1.1577, the lowest in nearly three weeks.
The moves pulled the Stoxx Europe 600 0.8% lower by mid-day in Frankfurt, while the euro tumbled 0.3% against the stronger U.S. dollar to 1.1585. Markets in Germany and France were pulled lower as well, while Britain's FTSE 100 followed suit with a 0.16% decline in London.
TheStreet
