Italian PM pledges to avoid Italexit, but markets fall - as it happened

And finally, European stock markets have ended the day in the red.

The early optimism, following China’s best day in a couple of years, burned off by the close of trading.

The FTSE 100 ended 7 points lower at 7,042, a drop of just 0.1%.

But Italy shed 0.6%, as traders braced for the EU to demand a budget rewrite tomorrow. Giuseppe Conte’s pledge to avoid an Italexit wasn’t enough to spark a rally.

France also lost 0.6%, while Spain was down almost 1%.

Over in New York, the Dow Jones industrial average has lost 131 points by lunchtime, a drop of 0.5%. However the Nasdaq tech index is up almost 0.4%.

That’s probably all for today. Goodnight! GW

View image in fullscreen

The pound is still suffering the Brexit blues, down almost one cent tonight.

Sterling held onto its losses, as prime minister Theresa May urged MPs to hold their nerve, as 95% of the deal with the EU was in place.

The news that her DUP partners might rebel over the remaining 5%, though, has worried the City.

Ricardo Evangelista, senior analyst at ActivTrades, says:

The Pound is down 0.8% on the day, dropping below the $1.30 psychological level for the first time since early October, following news that the Democratic Unionist Party, a key partner in parliament to the government of PM Theresa May, will back a proposal by rebel Tory MP’s to legislate in order to block an eventual post-Brexit Irish border back-stop agreement with the EU.

The new development makes a no-deal Brexit scenario more likely and sterling is struggling to find support, as the markets move to price-in the new development.

At least one European neighbour is agitating for the EU to reject Italy’s budget, points out the Financial Times:

Italy’s budget policy was sharply criticised by Sebastian Kurz, Austria’s chancellor, who said on Monday that Brussels should reject Rome’s plans unless there was a rethink.

“Austria is not prepared to stand behind the debts of other states while those states are actively contributing to market uncertainty,” said Mr Kurz. The EU “must show it has learnt from the Greek crisis”, he said.

Austria holds the EU’s rotating presidency.

Hartwig Löger, Austria’s finance minister, said Italy’s populist debt policy would be “taking the EU hostage” if Brussels did not act.

Italy’s refusal to change its budget plans for 2019 mean a clash with the EU later this week seems inevitable.

Brussels is expected to tell Rome that its planned structural deficit is too large, and demand a rewrite.

My colleage Angela Giuffrida watched Conte’s press conference earlier, and explains:

Italy refused to compromise on its economic targets, sending a letter to Brussels on Monday explaining why it will raise its deficit – the gap between government spending and income – to 2.4% of GDP. The prime minister, Giuseppe Conte, told reporters in Rome that the government was not being led by “a bunch of hotheads” and that the increased borrowing was needed to ensure that Italy’s economy grows.

Conte said the government, made up of a coalition of the anti-establishment Five Star Movement and the far-right League, would need €17bn (£15bn) to fund election campaign promises including tax cuts, a universal basic income and pension reforms.

“We studied this for a long time and concluded that if we had continued on the same road, Italy would have entered into a recession,” Conte said.

Investors are still jittery about Italy’s budget, despite the government’s attempts to calm the situation today.

Dan Smith, Investment Analyst at Thomas Miller Investment, explains:

With the Italian government taking an uncompromising stance to its budget thus far, the events this week could provide the litmus test for the European Commission’s ability to police national budgets. It remains a tough balancing act for Brussels; push too hard and risk strengthening eurosceptic sentiment in Italy, but too lenient a stance risks a counter reaction from other European members that comply with the rules.

Investor sentiment around Italian assets has deteriorated in recent weeks and with debt rating agencies issuing downgrades (with more set to come), we are at a particularly precarious moment.

22 Oct 201810.19 EDT

Greek insider: Greece is not Italy

Helena Smith

The developments in Italy today have brought smiles to the faces of Greek officials across the Ionian sea.

Italian prime minister Conte’s pledge not to quit the eurozone was a reminder of the Greek crisis three years earlier.

Market turmoil in Italy has hit Greek bank shares hard in recent weeks. The governor of the Bank of Greece, Yiannis Stournaras, blamed the dramatic drop in the share prices of Greek lenders to events in the neighbouring nation.

Even worse for a country that has pinned its hopes on returning to international borrowing markets after exiting its third and final bailout programme in August, Greek bond yields have followed the trajectory of Italy bonds.

This has highlighted Athens’ continued, and acute, vulnerability to what Stournaras described as “exogenous factors ... in Greece’s neighbouring countries in particular.”

A senior Greek finance ministry official said:

“Our priority has been decoupling the situation there and here ... Greece is not Italy and should not be perceived as such abroad.”

The Wall Street rally is fizzling out too..

Not so fast! Italy’s stock market has lost its early gains, sending the FTSE MIB down 0.6%.

Bank shares are dropping -- perhaps investors are worrying about how much Italian government debt they own....

There’s green on the boards as Wall Street opens:

View image in fullscreen

With the Chinese market surging by 4%, and Europe also higher, it’s a positive start to the week.

David Madden, analyst at CMC Markets, says the “bullish sentiment” from China has spilled over.

Dealers are cautiously optimistic as questions still hang over Italy’s financial health. Moody’s have downgraded Italy’s credit rating to one notch above junk status, but the agency lifted its outlook to stable from negative, so investors aren’t afraid of another downgrade in the near-term.

Just in, Supermarket group Wm Morrison has lost a legal battle against thousands of supermarket staff whose personal details were posted on the internet.

Morrisons now faces a potentially “vast” compensation payout, after losing a court of appeal case today, Press Association says.

The case was brought after the payroll data of around 100,000 employees was leaked on the internet, including names, addresses, and bank account details. This potentially exposed Morrisons staff to identity theft and fraud.

Andrew Skelton, the internal auditor who leaked the information, was jailed for eight years in 2015.

Wall Street is expected to follow Asia and Europe’s lead by rising when trading begins in 25 minutes: