European equities are recovering in Italy, worries about China growth persist

LONDON (Reuters) – Worries about the weakening Chinese economy pushed US equity futures down and kept global stocks under pressure on Monday, though European equities rose amid encouraging earnings reports and easing Italy's rating downgrade.

People walk the lobby of the London Stock Exchange in London, United Kingdom. August 25, 2015. REUTERS / Suzanne Plunkett / File photo

However, the euro fell to a session low after a high-ranking party source said German Chancellor Angela Merkel would not stand for election as party leader again after her Christian Democrats made losses in Hessian state elections.

The German leading index DAX .GDAXI rose by 0.7 percent at 0929 GMT, while the leading index of the euro zone .STOXX50E gained 0.5 percent, supported by a weaker euro.

Italy's FTSE MIB .FTMIB took the market by 1.5 percent after Italian bond yields fell sharply to a weekly low following Standard & Poor's decision to keep the Italian sovereign rating unchanged.

This also increased the Italian bank shares .FTIT8300 by 2.7 percent.

Despite gains on Monday, investors remained cautious about putting the farm on a reversal of risk.

"I can not summarize the core sentiment among the European investors I've met as something quite grim," wrote Erik Nielsen, chief economist at UniCredit Group, in a note to clients.

The MSCI World Equity Index .MIWD00000PUS, which tracks shares in 47 countries, posted a gain of 0.1 percent. The index has fallen 9.3 percent so far this month and has reduced its market capitalization by $ 6.7 trillion since its high in January.

The losses in Asia were mainly caused by China's blue-chip index, which plummeted by more than 3.3 percent.

Chinese data underscored concern about a slowing economy as earnings growth in its industrials eased in September for the fifth consecutive month due to lower sales of raw materials and manufactured goods.

The S & P 500 and Dow Jones Industrial Futures fell 0.2 to 0.3 percent and returned gains of up to 0.4 percent. 1YMc1 ESc1

Visitors look at a stock quote on the Tokyo Stock Exchange in Tokyo, Japan, October 11, 2018. REUTERS / Issei Kato

Global financial markets have been hit by a series of negative factors from a worsening China-US. Trade conflicts on tensions in Europe over Italy's budget and tighter monetary policy.

Many indices are already in an official correction area as concerns about corporate earnings and global growth have increased.

Analysts have downgraded their estimates of European earnings at their fastest pace since February 2016, and weak Internet giants Amazon and Alphabet have hurt US equities late last week.

Profit revisions from MSCI Europe:


Emerging markets equities .MSCIEF were a bright spot, gaining 0.1 percent in their first rise in five sessions after far-right candidate Jair Bolsonaro won the run-off in the second round of the Brazilian presidential election.

Brazil-exposed equities in Europe climbed as investors welcomed the victory. Blackrock's Latin American Investment Trust (BRLA.LLondon-listed equities rose 7.4 percent, while iShares MSCI Brazil ETF .MBRABRL.DE, which is listed in Germany, rose 6.6 percent.

"Our initial assessment for the Bolsonaro government is that it will adopt a pro-business mindset designed to enhance the country's competitiveness," said UBS analysts.

In FX, the Dollar Index .DXY rose 0.2 percent to 96,553, after gaining 0.7 percent last week.

The euro fell 0.2 percent to a two-month low of $ 1.1381. Sterling GBP = fell 0.2 percent, hovering near a two-month low of $ 1.7775 ahead of the UK annual budget, due later on Monday.

Finance Minister Philip Hammond is likely to urge his divided Conservative Party to back the government's demand for a Brexit deal or to risk a long-awaited easing of austerity measures.

In commodities, oil also returned its initial gains to curb growing concerns about Chinese growth. The US crude oil price CLc1 fell 58 cents to $ 67.01 a barrel and the Brent crude oil price LCOc1 fell 71 cents to $ 76.89.

Spot gold prices XAU = climbed lower as the dollar tightened.

Reporting by Helen Reid; Editing by Raissa Kasolowsky

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