European markets higher as Italy drama brews

European markets traded comfortably higher with London shares benefiting from a weakening of the pound and the oil price coming off its recent highs. Travel operator TUI is still among the top gainers of the day after a positive trading update as are the traditionally stable shares of utility companies.

Iran question dominates energy markets

The slightly lower oil price has notched oil companies down the league table of gainers while miners suffered from a decline in copper and gold prices. Oil remains caught in the cross hairs of the looming Iran sanctions which will come into effect in November. The US has been particularly keen to find ways of keeping them low, including negotiating with key producers about keeping production high. Although some Saudi Arabian officials made comments about being comfortable with higher prices both Saudi Arabia and Russia have been obliging. However, the US said late Wednesday that it will not use its own reserves to try and keep prices at bay. 

It remains to be seen how much effect the Iran sanctions will have on the actual supply particularly given that some countries already said that they will not follow the US in shunning Iranian oil. This may mean that while less Iranian oil will be flowing into the US and Western Europe the country’s supplies will still make it onto the global market and a supply shortage situation will be avoided. Brent Crude traded higher on the day at 81.20 but off the highs hit earlier this week.

Italy’s budget hurdle keeps bond markets on their toes

Italy’s budget discussions hit another hurdle Thursday with the budget announcement postponed as coalition partners failed to reach an agreement over the government’s spending and borrowing targets. The country is currently running a deficit of around 2.5% making EU bankers exceedingly nervous as they are keen to see this number stay around 2%. Markets fear that the country’s finance minister Giovanni Tria will fail to reach an agreement to keep the spending target at 2% which will send Italy on a path of a rising deficit rather than a reduction – the concerns were mirrored in a 1.8% decline in the FTSE MIB stock index and a leap higher in 2-year and 10-year yield rates. Italian banks are carrying the brunt of the pessimism causing additional nervousness about other European banking stocks. 

Optimism prevails as US markets ignore negative capital goods data

The market shrugged off the news that new orders of US-made capital goods fell in August – the first month the indicator saw a decline after four months of steady ascent. It was accompanied by news that the overall US goods deficit has widened sharply at the same time. The Commerce Department in the US said that orders for non-defence capital goods fell by 0.5%, with orders down for electronic goods and cars. Does this mean that the ongoing worries about how the US will fare in a new world order, one with tariffs defined by the Trump administration, will be justified? US exporters now have to tackle tariffs in markets they used to access easily. Business confidence in the US remains high, however, hence the market seems largely to have shrugged off the data. The S&P 500 was up over 0.5% in the morning session in the US, with the NASDAQ also in positive territory, up 0.8%.