European equities falter as Italy enters recession
Italy’s economy has slipped into a recession (PHILIPPE HUGUEN)
London (AFP) – Europe’s main stock markets faltered Thursday, with Milan sliding on gloomy news that the Italian economy has officially entered a recession, but London was buoyed by upbeat corporate earnings.
In early afternoon deals, Milan stocks were down 0.5 percent, Frankfurt flatlined and Paris eked out a gain of just 0.2 percent.
London rose 0.5 percent, with drinks group Diageo rising four percent on a share buyback and solid earnings, while energy giant Royal Dutch Shell stock jumped about 3.5 percent on soaring annual profits.
In Italy meanwhile, official data showed that the eurozone’s third largest economy shrank 0.2 percent in the final quarter of last year after a 0.1 percent drop in the third quarter.
The technical definition of a recession is economic contraction for two quarters in a row.
“The risk of recession in the eurozone is something that has been widely discussed for weeks now but the news that Italy has fallen into technical recession still comes as a blow to the region,” Oanda analyst Craig Erlam told AFP.
– ‘Others could follow’ –
“Others could also follow with Germany having posted negative growth in the third quarter. This is naturally weighing on sentiment,” Erlam warned.
Data also showed that expansion in the overall eurozone economy slowed sharply to 1.8 percent in 2018 after 2.4 percent the previous year, as slumping German exports and Brexit worries sapped momentum.
However, growth hit an anaemic 0.2 percent in the October to December period, the same as the previous quarter, the Eurostat agency added.
Italy’s recession places intense pressure on the nation’s populist government, headed by Prime Minister Giuseppe Conte who took power in June on the back of big-spending electoral promises.
“This (recession) should not really be a surprise given the direction of travel of recent data,” CMC Markets analyst Michael Hewson told AFP.
“The problem EU policymakers have is that it looks as if it could well me much more serious than originally thought.
“If that is the case it makes it much more likely that the Italian government will feel compelled to breach its deficit targets even further.
“The deterioration in the data thus makes a renewed conflict with the EU Commission much more likely,” Hewson added.
– Dollar extends losses –
Elsewhere Thursday, the dollar extended losses after the Federal Reserve signalled it would slow down its pace of interest rate hikes, providing some much-needed respite to investors fretting over the cost of borrowing.
The US central bank sparked a flurry of equity buying after chairman Jerome Powell said the case for lifting rates had “weakened somewhat” as the global economy stutters.
The Fed also noted it could slow down the reduction of its securities holdings, which would also help keep rates lower.
Wall Street rallied, with dealers there also cheering healthy earnings from big-hitters, including Facebook and Boeing.
The dovish signal from the Fed sent the dollar tumbling against most other currencies Wednesday and extending the losses on Thursday.
Dealers are also keeping an eye on top-level talks between China and the United States aimed at resolving their long-running trade war, which kicked off on Wednesday.
– Key figures around 1200 GMT –
London – FTSE 100: UP 0.5 percent at 6,977.80 points
Frankfurt – DAX 30: FLAT at 11,181.45
Paris – CAC 40: UP 0.2 percent at 4,984.17
Milan – FTSE MIB: DOWN 0.5 percent at 19,678.64
EURO STOXX 50: DOWN 0.3 percent at 3,152.36
Tokyo – Nikkei 225: UP 1.1 percent at 20,773.49 (close)
Hong Kong – Hang Seng: UP 1.1 percent at 27,942.47 (close)
Shanghai – Composite: UP 0.4 percent at 2,584.57 (close)
New York – Dow: UP 1.8 percent at 25,014.86 (close)
Pound/dollar: UP at $1.3136 from $1.3116 at 2200 GMT
Euro/pound: DOWN at 87.45 pence from 87.53 pence
Euro/dollar: UP at $1.1486 from $1.1480
Dollar/yen: DOWN at 108.63 yen from 109.04
Oil – Brent Crude: UP 35 cents at $62.00 per barrel
Oil – West Texas Intermediate: UP 10 cents at $54.33
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