Europe’s markets tumble

London — Europe’s share markets and the euro both took a tumble on Thursday as a report that Italy’s long-awaited budget was facing a delay compounded an already groggy global mood after the third US interest rate rise of the year.

Italy’s main Milan bourse slumped as much as 2% in early trading, with the country’s main banks down even more as the country’s borrowing costs hit a three-week high in the government bond markets.

Investors have been anxious about Italy’s budget which some fear could lead to a blowout of the country’s deficit, and put the coalition government on a collision course with the EU.

Italian Deputy Prime Minister Luigi Di Maio confirmed that a cabinet meeting over budget targets was planned for later, dismissing a report in the Corriere della Sera newspaper that said it could be delayed.

But it could not soothe the markets, especially after the economy ministry was forced to deny its chief Giovanni Tria, an academic who does not belong to any one party, had threatened to resign.

“It is very fluid and it is changing by the minute it seems,” State Street Global Advisers’ head of Europe, Middle East and Africa macro strategy, Tim Graf, said.

“Even if things get resolved positively today, Italy is not a situation that is going to go away,” he said, pointing to the still growing popularity of the country’s fractious anti-establishment coalition government.

The strains weighed on the rest of Europe too. The Stoxx 600 was down 0.5% while the euro skidded all the way down past $1.17 in the currency market.

That fall also gave the dollar a boost after it had only managed a lazy gain overnight after the Federal Reserve hiked US interest rates by another 25 basis points to a range of 2%-2.25%.

The dollar index, which measures the greenback against a basket of currencies, was last up 0.4% to 94.529.

The index had scaled a 13-month high in mid-August, drawing safe-haven demand as trade tensions buffeted riskier emerging-market currencies. The index has since fallen about 2.8% though, as investors have become more nuanced in their views.

The Australian dollar seen as a barometer of global investor risk appetite and Chinese demand for goods, fell 0.4% to $0.7226, its lowest since September 19 and not far off its two-and-a-half-year lows of $0.7085 hit earlier this month.

The Fed still foresees another rate hike in December, three more in 2019, and one increase in 2020.