Global stocks turned lower on Friday amid concern that Italy's populist government plans to spend heavily on policies that could add to the country's already heavy debt load.
KEEPING SCORE: In Europe, Italy's FTSE MIB plunged 4.1 percent to 891 points, while France's CAC 40 lost 1 percent to 5,487. Germany's DAX dropped 1.5 percent to 12,243 and the FTSE 100 in Britain shed 0.8 percent to 7,488. Wall Street was set for a weaker open, with Dow and S&P 500 futures both down 0.3 percent.
ITALIAN SPENDING: Italy's new government announced a sharp increase in spending that will push the budget deficit to 2.4 percent of gross domestic product next year, a significant jump from the 2018 target of 1.6 percent set by the former government. While still within the 3-percent ceiling set by the EU, it is likely to set up a clash with EU executives who want Italy to bring down its debt level, the second highest in the EU after Greece. A clash could further erode popular confidence in the EU and euro at a time of heightened uncertainty, from Brexit to diplomatic clashes with governments in Eastern Europe.
ANALYST'S TAKE: Economists note that Italy's public borrowing costs are still low by historical standards, so there is no imminent financial crisis. But if the government takes a hard line with the EU and continues to overspend, investor confidence could erode. A drop in the value of Italy's debts could shake the banks, which are among the biggest holders of Italian bonds, testing the country's financial stability. "There are concerns over how the EU will respond to the Italian budget that showed less fiscal rectitude than expected," says Chang Wei Liang, analyst at Mizuho Bank.
ASIA'S DAY: Markets rebounded on Friday as strong U.S. economic data supported the Federal Reserve's decision to raise interest rates. Hong Kong's Hang Seng index added 0.3 percent to 27,788.52. The Shanghai Composite Index rallied 1.1 percent to 2,821.35. Australia's S&P ASX 200 was 0.4 percent higher at 6,207.60. South Korea's Kospi bucked the regional trend, losing 0.5 percent to 2,343.07. Shares fell in Taiwan and the Philippines but rose in Singapore and Indonesia.
JAPAN-US-TRADE: Japan's Nikkei 225 jumped 1.4 percent to 24,120.04 after the country agreed to open negotiations on a bilateral trade agreement with the United States. The move won Japan relief from the immediate threat of punitive tariffs on its auto exports to the U.S. The yen rose sharply against the dollar overnight.
U.S. ECONOMY GROWS: The U.S. economy grew at a robust annual rate of 4.2 percent in the second quarter, its best performance in nearly four years, the government reported Thursday. "We're doing much better than anybody thought possible," President Donald Trump said at a news conference. But economists believe growth has slowed in the current quarter partly because of a drag from trade.
ENERGY: Benchmark U.S. crude rose 7 cents to $72.19 per barrel in electronic trading on the New York Mercantile Exchange. The contract gained 0.8 percent on Thursday to close at $72.12. Brent crude, used to price international oils, added 52 cents to $82.24. It settled at $81.38 per barrel in London.
CURRENCIES: The dollar edged down to 113.36 yen from 113.42 yen. The euro weakened to $1.1579 from $1.1658.