The European situation gradually worsened as Monday went on, the return of the budget deficit battle between Italy and the EU adding to the market’s pre-existing US interest rate concerns.
The tone was set for the session by the Chinese markets, which returned from a week-long holiday and immediately played catch-up with the losses that eventually defined October’s open. This resulted in the SSE 50 Index's worst day for 3 years, and came despite Beijing cutting the reserve requirements for banks, amounting to a $109.2 billion cash injection into the economy.
Matters were made worse on Monday by the reigniting of the conflict between Italy and the EU over the former’s budget deficit. The European Commission had written to Italian economy minister Giovanni Tria outlining its ‘serious’ concerns about the budget, only for Deputy Prime Minister Luigi Di Maio to respond that the government will ‘not retreat’ over its spending plans.
This resulted in another round of heavy losses in Europe, with the DAX down 90 points and the CAC falling 0.9%, leaving them straining to hold above 12000 and 5300 respectively. As for the FTSE, after initially resisting a sharp decline the UK index ended up dropping 50 points, hitting a fresh 3 week low of 7270 in no small part thanks to the drag from its banking and commodity stocks.
What’s especially remarkable about those losses is that fact woeful showing from the pound and euro against the dollar little to alleviate the indices’ pain. Cable dropped 0.6%, returning it to $1.303, while the single currency slid half a percent to duck under $1.147.
At the moment the Dow Jones is set to avoid the same kind of severe drop as seen in Europe, with the futures forecasting a 0.2% dip when the bell rings on Wall Street. That’d still take the Dow the wrong side of 26400, however, continuing the losses that set in at the end of last week.
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