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Europe open: Stocks gain as Italian debt rally enters second day

By Alexander Bueso

Date: Monday 22 Oct 2018

Europe open: Stocks gain as Italian debt rally enters second day

(Sharecast News) - Stocks are staging modest gains with investors breathing a sigh of relief that ratings agency Moody's did not keep its outlook on Italy's sovereign debt at 'negative' on Friday, thus pushing back the risk that a downgrade into 'junk' might be just around the corner.
Investors were nevertheless still on the defensive amid a somewhat contradictory news-flow out of Rome early on Monday morning ahead of a noon deadline for the government to respond to Brussels queries regarding its new short to medium-term budget plans.

At the weekend, Italian Cabinet Undersecretary Giancarlo Giorgetti reportedly said investors should interpret the government's forecast for a 2.4% debt-to-GDP ratio in 2019 not as a target, but as a ceiling, but in parallel other reports appeared to indicate that Rome would not budge on its plans.

Commenting on the mood in markets, Michael Hewson, chief market analyst at CMC Markets UK, said: "Increasing concerns about rising interest rates, trade, and geopolitics from Italy and now Saudi Arabia have served to keep investors a little cautious of loading up on significant amounts of fresh risk and the weekend decision by the US to pull out of INF, the Intermediate-Range Nuclear Forces treaty with Russia, over alleged non-compliance, is unlikely to improve the mood."

As of 1030 BST, the benchmark Stoxx 600 was up by 0.29% or 1.05 points at 362.69, alongside an advance of 0.68% or 129.64 points to 19,209.24 for Milan's FTSE Mibtel.

Germany's Dax meanwhile was ahead by 0.56% or 64.96 points at 11,618.37.

Meanwhile, the yield on the benchmark 10-year Italian Treasury note was down by five basis points at 3.43%, having hit an intraday low, earlier during the session, at 3.3%. That was on top of a 20 basis point drop last Friday.

On 19 October, debt rating agency Moody's cut its rating on Italy's long-term debt by one notch to Baa3, but raised the outlook for the same from 'negative' to 'stable'.

Also boosting sentiment, overnight shares on the Shanghai Stock Exchange's Composite Index jumped by 4.09% or 104.1 points to 2,65.88 - its biggest one-day gain for three years - after authorities promised tax cuts.

Although traders were skeptical, on Saturday the US President claimed his party had been working on "a very major tax cut" for middle-income people which would be unveiled over the coming weeks.

In corporate news, shares in Royal Philips tumbled after the health technology firm posted a 7% rise in third quarter operating profits to €568m, falling short of analysts' estimates.

Going the other way, stock in carmaker Fiat snapped higher after unveiling a deal to sell auto parts manufacturer, Magneti Marelli, to KKR&Co's Calsonic Kansei for €6.2bn.

Salvatore Ferragamo shares were also wanted after the widow of the luxury shoemaker's founder, Wanda Ferragamo, passed away at the weekend, prompting speculation of a possible take-over.

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