DAX Under Pressure Over Italy Budget

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The DAX index has posted losses in the Wednesday session. Currently, the index is at 12,287 points, down 0.42% since Tuesday. In economic news, Germany and Eurozone services PMIs improved in September, with readings of 55.9 and 54.7 points, respectively. Eurozone retail sales declined 0.2%, missing the estimate of +0.2%.

The German and Eurozone services PMIs continued to show expansion in September. German Services PMI climbed from 55.0 to 55.9 points. This reading was the strongest since February, but missed the forecast of 56.5 points. Eurozone Services PMI improved to 54.7, matching the forecast. The news was less rosy from Eurozone retail sales, which posted a decline of 0.2% for a second straight month.

With Italy and the EU on a possible collision course over Italy’s budget, European markets remain under pressure. The European Union is unhappy with the proposed Italian budget, which increases spending, lowers taxes and sets the budget deficit at 2.4% of GDP for 2019. The European Commission must approve the budget, and EU policymakers have been pushing Rome to reduce the current deficit, which stands at 1.6% of GDP. EU Commissioner Pierre Moscovici said last week that the budget could breach EU fiscal regulations and called the Italian deficit “explosive”. The populist Italian government appeared to backtrack on Wednesday, and has now said that the budget deficit could be lowered in 2020 and 2021. Still, the budget remains a sore point for the EU, and the euro could lose ground if the EU and Italy remain at loggerheads over Italy’s fiscal policy.
 
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