Europe Markets: Italian stocks lead Europe lower as politics spook traders

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European stocks on Friday retreated from an almost-four month high as uncertainty about Italian politics contributed to a market already jittery over trade tensions between global superpowers China and the U.S.

What are markets doing?

The Stoxx Europe 600 index SXXP, -0.08%  tipped about 0.1% lower to 395.44, on track to break a three-day winning run. On Thursday, the pan-European benchmark ended at its highest level since Jan. 30, buoyed by a rally for oil-related companies.

For the week, the Stoxx 600 was on track for a 0.6% gain.

Italy’s FTSE MIB Index I945, -0.80%  slumped 1% to 23,564.03, as political developments in the country flustered markets.

The yield on 10-year Italian bonds TMBMKIT-10Y, +4.60%  rose 3 basis points to 2.164%, according to Tradeweb.

Germany’s DAX 30 index DAX, +0.06%  was trading at break-even levels up less than 0.1% to 13,119.60, while France’s CAC 40 index PX1, +0.17%  ticked up 0.1% to 5,628.20.

In the U.K., the FTSE 100 index UKX, -0.12%  slipped 0.2% to 7,774.39, but was still on track for a 0.6% weekly advance.

The euro EURUSD, -0.1018%  rose to $1.1813 from $1.1794 late Thursday in New York.

What is driving the market?

Italian politics remained in focus on Friday after the country’s two biggest populist parties on Thursday agreed on a coalition program that included plans to cut taxes and increase fiscal spending, but no direct threat to Italy’s membership of the eurozone.

Credit-ratings firm DBRS warned on Thursday that the economic proposals from the 5 Star Movement and League could threaten Italy’s credit rating, according to Reuters.

Traders also watched the latest in the U.S.-China trade dispute after U.S. President Donald Trump somewhat dashed hopes of a trade deal between the two countries. At a press conference on Thursday, Trump said he doubts that the negotiations will succeed because “China has become very spoiled” on trade.

What are strategists saying?

“Although we have to brace ourselves for significant noise, including clashes between Rome and Brussels, a truly disruptive crisis in Italy] is probably not on the cards for now,” said Holger Schmieding, chief economist at Berenberg, in a note.

“However, if highly-indebted Italy loosens the fiscal reins and reverses some recent reforms such as the ‘Fornero’ pension reform, the country would become vulnerable to a debt crisis if and when the next cyclical recession exposes the country’s weaknesses,” he added.

Stock movers

Ferrari NV RACE, +0.18%  inched 0.2% higher after the car maker named Antonio Picca Piccon as new chief financial officer, effective July 30. He’ll take over from Alessandro Gili, who is leaving on May 31.

Shares of Cie. Financière Richemont SA CFR, -4.83%  slid 6.2% after the luxury-goods company reported full-year earnings.

“There has been much positivity in luxury post strong results across the space; therefore we see the higher-than-expected inventory buybacks, slight miss on underlying EBIT and lower-than-expected dividend as being slightly disappointing today,” said analysts at UBS in a note.

Shares of AstraZeneca PLC AZN, -2.45% AZN, -0.16%  dropped 2.5% after the pharma giant reported core earnings that missed forecasts. Core operating profit—the company’s preferred measure, which strips out one-time gains and impairments—fell to $896 million from $1.67 billion a year ago.

Ubisoft Entertainment SA UBI, +5.35%  jumped 5.5% after the French videogame maker reported full-year revenue ahead of forecasts.