European stocks lower

European stock markets slipped back yesterday, with early gains turning to losses following a defiant reply to EU critics by Rome, which intends to stick to a controversial spending budget. The dollar rose against major rivals, while oil prices edged lower, as investors also tracked geopolitical tensions, notably in response to the murder of Saudi critic Jamal Khashoggi.

Italy’s coalition government told the European Union that it would stick to its high-spending draft budget but would also scrupulously avoid going over its own debt and deficit limits. “The figure of 2.4 per cent (deficit to GDP ratio in 2019) is a ceiling that we have solemnly undertaken to respect,” Prime Minister Giuseppe Conte told journalists after the coalition sent its pledge in a letter to the EU. The coalition was under some pressure following a cut in its credit rating by Moody’s Investors Service on Friday.

“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,” noted David Madden, market analyst at CMC Markets UK. At the close yesterday, the Milan FTSE MIB index was off by 0.6pc, after an initial rally petered out. Wall Street stocks also gave up initial gains in midday trading.

Moody’s downgraded Italy’s sovereign debt on concerns about its populist government’s plans to increase public spending, a move criticised by the European Union. The downgrade -- from Baa2 to Baa3 with a stable outlook -- was the latest example of international financial watchdogs sounding alarms over Italy’s economic health.