Italy budget deficit rattles stock markets in Europe.
A view of Italy's Stock Exchange, the Borsa Italiana, in the Piazza Affari in Milan. Milan's FTSE MIB closed 3.7% down at 20,712 points yesterday.
Plans by Italy's new populist government to loosen the budgetary belt a few notches roiled markets in Europe, while Tesla shares took a beating after CEO Elon Musk was charged with fraud. With the spending plans putting the Italian government on a collision course with the European Commission, Milan took the brunt of the blow in equity markets, dropping by more than 4.6% at one point. Milan's FTSE MIB closed 3.7% down at 20,712 points, London's FTSE 100 ended 0.5% down at 7,510.20 points, Frankfurt's DAX 30 finished 1.5% down at 12,246.73 points, Paris' CAC 40 lost 0.9% at 5,493.49 points and Madrid's IBEX 35 shed 1% at 9, while the EURO STOXX 50 closed 1.4% down at 3,401.97 points. Thursday's budget deal that calls for a 2.4% deficit for the next three years came after warnings from the EU to rein in spending, and vastly exceeds the 0.8% deficit foreseen by the previous, centre-left government. The trading of shares in some Italian banks was briefly suspended amid heavy price falls, with Banco BPM leading the way down with a drop of 9.4%. The top two Italian banks, UniCredit and Intesa Sanpaolo, lost 6.7% and 8.3% respectively. Shares prices of major European banks outside Italy also slumped, with French lender Credit Agricole down 4.4%, Deutsche Bank sliding 3.8% and Barclays losing 2.8%. Meanwhile, the yield on Italian government bonds jumped and the euro also dropped heavily against the dollar. Italian government bonds "have unsurprisingly been under pressure..." said analysts at UniCredit in a note to clients. The spending plan "...creates several important challenges, from a confrontation with the EC to the possibility of a downgrade of the sovereign credit rating," they said, adding that volatility in Italian bond prices was likely continue, especially as the European Central Bank winds down expanding its purchases of government bonds. Wall Street pushed higher yesterday, although shares in Tesla tumbled by as much as 12.8% on its CEO being pursued on fraud charges. The US Securities and Exchange Commission on Thursday charged Tesla CEO Elon Musk with securities fraud, alleging he misled investors last month in tweets about taking the company private. The SEC is also seeking to bar Musk from serving as a director of a publically listed company. Analyst notes said the SEC's move would likely increase the costs for Tesla to raise capital and could bolster private litigation against Tesla over Musk's claims on going private, while the prospect of Musk's complete removal was also worrisome. Meanwhile, benchmark crude oil, Brent North Sea, extended gains amid predictions that it could again hit $100 per barrel.
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