Markets rally as Italy 'backs down' in budget row with Brussels - business live

Economy minister Tria says Italy plans to cut budget deficit starting in 2020, earlier than previously said, after clash with EU

• Latest: Economy minister says deficit will fall in 2020 and 2021
• Introduction: Italian cabinet to discuss budget today
• Italy's government bonds are recovering
• Euro and Italian shares are rallying

7.06pm BST

The clash over Italy's new budget plans have sparked memories of the Greek debt crisis.

Withe relations between Rome and Brussels deteriorating, some investors are wondering if we could see a repeat of the drama of 2015, with another populist government promising to challenge the eurozone status quo.

What ultimately saved Greece's membership in the euro zone a few years ago was the imminent threat of default. Fearing a shock that would tip the economy into a multiyear depression and fundamentally alter many of Greece's regional economic and financial relationships, the Syriza government opted for an orthodox approach, even though it had won both the election and the referendum by backing a political agenda that advocated doing the opposite.

The hope of many investors - as well as EU officials, ECB officials and several policy makers in European capitals - is that the Italian government will perform a similar pivot, even though the immediate default risk is lower. In doing so, Rome would need to design a more comprehensive program aimed at generating high, inclusive and sustainable growth.

5.53pm BST

Wall Street remains on track for yet another record close tonight.

Fiona Cincotta of City Index attributes the rally, in part, to optimism over Italy.

Some traders have been looking past the Brexit and tariff issues which have dominated headlines recently and have seen the iceberg that is the Italian debt situation looming ahead.

Fears also seem to be subsiding on news that the Italian government has said it would cut its debt and not go on the spending binge it had previously indicated. Sources close to an Italian cabinet meeting told Corriere dell Sera that the government would bow to EU pressure to reduce its budget deficit to 2% of GDP by 2021. This was enough to convince UBS, which stated that it was going to be overweight in two year Italian bonds and that the market now looked cheap for short-dated Italian debt. The bank is still prudently cautious on longer term Italian bonds but fears over a short term default seem to be ebbing.

5.36pm BST

Back in the markets, the conciliatory noises from Rome helped shares to close higher in Milan, and beyond.

The FTSE MIB index ended the day up 0.85%.

3.24pm BST

The IMF has also warned that governments haven't done enough to protect themselves from the next downturn.

It says:

"risks tend to rise during good times, such as the current period of low interest rates and subdued volatility, and those risks can always migrate to new areas."

Related: World economy at risk of another financial crash, says IMF

3.23pm BST

Newsflash: The International Monetary Fund has warned that the world is still suffering from the 2008 financial crisis.

In its latest World Economic Outlook, the IMF warns that the crisis may have had lasting effects on potential growth and inequality, as well as slashing output and hurting productivity.

For example, fertility rates have been on a steeper decline in many economies-a development that will drag on the size of the labor force in the future in those countries.

Another effect is that net migration (immigration minus emigration) rates among advanced economies declined after the crisis.

Those in better fiscal shape, with better regulated and supervised banks, and flexible exchange rates generally suffered less damage.

Output losses after the financial crisis are persistent in many countries and not restricted to those that suffered a banking crisis in 2007-08 #WEO https://t.co/KQLhdmFvNN pic.twitter.com/c3DdmKsZIH

3.13pm BST

Developments in Italy....

*ITALY BUDGET OUTLINE READY, TO BE SUBMITTED AFTER 5PM: OFFICIAL

3.02pm BST

The oil price is hovering close to a four-year high today, at $84.55 per barrel.

That's bad news for energy consumers, and drivers.

Russian President Vladimir Putin said his American counterpart's Iran sanctions are largely to blame for current high oil prices.

"President Trump considers that the price is high; he's partly right, but let's be honest," Putin said at the Russian Energy Week conference in Moscow on Wednesday. "Donald, if you want to find the culprit for the rise in prices, you need to look in the mirror."

"Donald, if you want to find the culprit for the rise in [oil] prices, you need to look in the mirror" -- Putin https://t.co/gbe7bpGFqF

2.44pm BST

The US stock market has opened higher, amid optimism that the Italian budget row might be resolved.

BREAKING: Dow Jones Industrial Average opens at new all-time high https://t.co/hYesfgqjPc pic.twitter.com/RYWgbFVnk5

In the near-term, concerns about Italy are primarily related to spending and the impact on its already bloated debts but in the longer-term, they also reflect the very real risk that the public could become more eurosceptic and talk of referendums could follow.

For now, this is likely to be some time away and the fragility of the Italian banking sector and still large holdings of Italian bonds make investors very nervous.

2.25pm BST

Over in Paris, European Commissioner Pierre Moscovici has welcomed the news that Italy appears to be revising its borrowing plans.

"It's a good signal that the trajectory has been revised because it shows that the Italian authorities are hearing the concerns and remarks from their partners and the European Commission."

2.20pm BST

Deputy Italian PM Matteo Salvani has also said that the government will publish its multi-year budget later today.

2.10pm BST

Italian bonds are continuing to rally, following economy minister Giovanni Tria's pledge that its deficit will fall in 2020 and 2021 (after rising in 2019).

The yield on Italy's 10-year debt has now dropped to just 3.3%, from over 3.4% when fears over Rome's budget were raging yesterday.

#Salvini's goal of GDP growing +1,5% in 2019 is completely at odds with reality. #Confindustria predicts only +0.9%. This way Italian government believes that its 'tax and spend' programme could boost Italian growth. So bad financial markets do not believe it @graemewearden

1.48pm BST

Just in: Matteo Salvini, the head of the right-wing League party, has insisted that his government is sticking to its target of a 2.4% budget deficit next year.

No mention of 2020 or 2021, though.....

SALVINI SAYS ITALY GOVT WON'T BUDGE ON 2019 DEFICIT GOAL: ANSA

*SALVINI SAYS #ITALY GDP TO RISE AT LEAST 1.5% IN 2019: ANSA
*SALVINI SAYS ITALY GOVT WON'T BUDGE ON 2019 DEFICIT GOAL: ANSA

1.09pm BST

Italy's stock market is still sharply higher today, on relief that Rome might be backing away from a major clash with Brussels.

The FTSE MIB is up 1.3%, led by banking stocks such as Unicredit (+1.4%), and Intesa Sanpaulo (+1.85%).

12.35pm BST

Here's Associated Press's take on Italy's budget plans:

Italy's economy minister is backing down on spending plans that would keep the country's deficit at an elevated level for three years.

Giovanni Tria said Wednesday in Rome that the deficit to GDP ratio would be gradually reduced after 2019. The remark confirms a report by Corriere della Sera that the 2.4-percent budget deficit in the new spending plan would apply only to next year.

12.01pm BST

Boom! Italy's economy Minister Giovanni Tria has let the gatto out of the bag.

He's confirmed that the Italian government now plans to cut the budget deficit in 2020 and 2021, after letting it rise in 2019 (probably to 2.4% of national output).

"The deficit will increase compared with the previous forecast in 2019, but then there will be a gradual reduction in the following years."

I've just listened to Giovanni Tria but I am afraid I am no wiser. He has called for greater public investment, an income support scheme, lowering the pension age and cutting taxes. And, still, the govt will only have 3.4 billion euros to spend next year, by his own maths. pic.twitter.com/sMVsPj9Aue

11.37am BST

Italy's populist government have good reason to consider breaching EU spending rules.

After many years of lacklustre growth, the Italian economy needs a boost. And with a massive national debt around a2 trillion, what damage does a little more borrowing do, especially if it delivers faster growth and more jobs - and eventually a bigger tax take - in future?

Italy's fiscal plans and the behaviour of its key political leaders are probably self-defeating. Yes, Italy has underutilised resources. The economy may well respond for a while to a fiscal stimulus such as the one Italy's radical coalition is planning against the advice if its own finance minister.

However, picking a noisy fight with Italy's European partners could stoke euro exit fears and depress economic sentiment by more than the fiscal stimulus could lift investment intentions and consumer spending.

10.36am BST

Newsflash: Deputy Italian PM Luigi Di Maio has been speaking about the government's budget plans.

*ITALY DI MAIO: 2019 DEFICIT AT 2.4% CONFIRMED

*ITALY DI MAIO SAYS GOVT MULLING CUTTING DEBT/GDP AFTER 2019

*ITALY DI MAIO SAYS GROWTH WILL ALLOW TO CREATE LESS DEFICIT

*ITALY DI MAIO: FLAT TAX FOR SMALL ENTREPRENEURS VERY IMPORTANT

*ITALY DI MAIO SAYS EU10B IS MINIMUM AMOUNT FOR CITIZEN INCOME

9.52am BST

Just in: Britain's service sector grew steadily last month, despite Brexit anxiety.

Data firm Markit reports that its services PMI index, which measures activity, dipped to 53.9 in September from 54.3 in August. Any reading over 50 shows growth.

#UK September Services PMI falls to 53.9 vs 54.3 and below estimates - the pound is relatively unchanged though as #Brexit and the #ToryConference continues to dominate this week https://t.co/gPmadOx6Ao

"The service sector continued to report solid steady business growth in September which, alongside news of sustained expansions in both manufacturing and construction, suggests the UK economy expanded by just under 0.4% in the third quarter.

"The data therefore add to signs that the economy has enjoyed robust growth since the rocky start to the year, when extreme weather disrupted business.

9.37am BST

Thu LanNguyen, a FX strategist at Commerzbank, has warned that the market recovery may not last (via Reuters):

"That the Italian government is trying to appease its EU partners can be seen as a step in the right direction and therefore justifies some euro-positive reaction.

"The devil is in the details. The euro's recovery will only continue if the new fiscal plans are also feasible.

9.30am BST

Disappointing news from Italy -- employers' lobby group Confindustria has cut its growth forecasts.

Confindustria now expects GDP to only rise by 0.9% in 2019, down from 1.1% previously. That's rather less than the government's official target of 1.6%.

9.10am BST

Back in the City, Aston Martin has made an underwhelming debut on the stock exchange.

Paternoster Square painted Aston Martin. A proud day! pic.twitter.com/Ng78HkJpKt

Related: Aston Martin IPO disappoints as luxury carmaker's value falls

The strike price may be a disappointment for the owners - it's a long way short of the 22.50 talked about previously as the top of the range. But this is a fairer valuation when you compare with peers - notably Ferrari - and therefore this price could offer an in for longer term investors that the higher valuation would not have afforded.

8.44am BST

After days of losses, Italian government bonds are looking a little perkier too.

The yield (or interest rate) on Italy's 10-year debt has dropped back to 3.33%, from a four-year high of 3.46% overnight.

Good #Italy morning? Italian 2-year bond spread down ~25 basis points as government is said to reduce budget deficit targets for 2020 and 2021. pic.twitter.com/XCEKCQF6PN

#Italy #budget #BTP #EUR Local newswires report that the government will lower the budget deficit for 2020 to 2.2% and 2021 to 2.0%. If this is true it will lower the risk the EU will give a negative opinion on the budget. Expect BTPs to rally today and EUR/USD to bounce. pic.twitter.com/DdqkJ0jPg7

8.35am BST

Italian bank shares have jumped by 3% in Milan.

Traders are welcoming the news that the country's government may be bowing to EU pressure, and trimming its planned budget deficit.

8.26am BST

The euro has risen by 0.3% in early trading against the US dollar, to $1.158, having hit a six-week low on Tuesday.

8.23am BST

Reuters is also reporting that Italy is planning to rein in its deficit plans, following pressure from the EC:

Italy's government targets for the budget deficit to fall to 2.2% of gross domestic product in 2020 and to 2% in 2021 from an expected 2.4 percent next year, a government source from the right-wing League party said on Wednesday.

The 2020-2021 numbers were first reported by daily Corriere della Sera and La Repubblica.

8.05am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Is peace breaking out between Rome and Brussels in the budget row that has spooked the markets?

Italy's government will bow to European Union pressure to reduce its budget deficit to 2 percent of gross domestic product in 2021, reversing plans to maintain a bigger shortfall for the next three years, Corriere della Sera reported, citing a Cabinet meeting

Italy's draft budget plan will pledge to cut the deficit to 2% in 2021, after the government reversed a proposal to maintain a 2.4% shortfall in the face of pressure from the EU, Corriere della Sera reported, citing a Cabinet meeting #comediadelarte

Newsflow suggests Italy overnight talked about cutting the budget deficit in forward years 2020/21 to around 2%. Markets have been under pressure given the uncertainty around this - could see some risk-on. (Bloomberg)

Related: IMF chief warns of economic slowdown on back of trade disputes

Having seen manufacturing beat expectations and construction slip back, the focus will be on today's UK services number to round off Q3 and a decent economic performance for the quarter. Thus far for Q3 services activity came in at 54.3 for July and 53.5 in August. Today's September number is expected to show a slight decline to 54, which would be pretty much in line with the average, and point to another fairly decent expansion.

It's also services PMI day for Spain, Italy, France and Germany and here the numbers are slightly better than the manufacturing numbers we saw on Monday. For Spain and Italy expectations are for improvements to 52.9 and 52.8 respectively, while France and Germany numbers are expected to be confirmed at 54.3 and 56.5, the same as last week's flash estimates.