- US government faces budget deadline
- Chicago PMI increases
- Italy's political woes heighten
- Eurozone inflation rises at slower pace
- UK mortgage approvals climb
FTSE 100: -0.77%
CAC 40: -1.03%
FTSE MIB: -1.20%
IBEX 35: -0.61%
Stoxx 600: -0.56%
A potential US government shutdown and political turmoil in Italy provided a drag on European equities on Monday.
The US government has until midnight on Monday to reach a deal on a new budget or it will come to a screeching halt. The Senate convenes at 14:00 in Washington.
It would mark the first time in 17 years of a government shutdown, which economists predict would reduce fourth-quarter economic growth by as much as 1.4 percentage points.
Policymakers have been wrangling over whether to extend the current debt-ceiling limit of $16.7tn. Last week Treasury Secretary Jack Lew said the US would hit the ceiling on October 17th unless it was allowed to extend its borrowing limit.
A temporary government shutdown became almost inevitable after the House of Representatives on Sunday refused to pass a budget unless it involved a delay to Barack Obama's signature healthcare reforms.
"We shouldn't be too surprised really that Congress failed to agree on a new budget over the weekend," said Craig Erlam, a market analyst at Alpari.
"As we've seen in the past, the months leading up to the deadline are simply seen as an opportunity for both sides to gain political points, while making a villain out of the opposition. It's only in the final 24 hours that any actual progress tends to be made. We can only hope that this is what we're seeing again."
Also making waves in the US on Wednesday was a report which showed manufacturing rose more than expected. Chicago's purchasing managers´ index (PMI) for the manufacturing sector rose to a seasonally adjusted 55.7 in September from a reading of 53 in August. Economists had pencilled in a reading of 54. A reading above 50 signals expansion.
Italy's political crisis
Woes over political stability in Italy heightened on Monday after centre-right leader Silvio Berlusconi pulled his Il Popolo della Libertà (PDL) party ministers out of the ruling coalition over the weekend.
Berlusconi's move, which comes amid facing expulsion from the Senate due to a conviction for tax fraud, fuelled speculation over the possibility of new elections.
Prime Minister Enrico Letta is now battling for support in parliament to avoid going to the polls. A confidence vote will be held in parliament on Wednesday.
On Monday, Reuters reported that 20 Italian centre-right lawmakers may break with Berlusconi if he tries to bring down the coalition.
"If Silvio doesn't agree to take a step back from what the hawks are proposing, we could have a new moderate group by Wednesday," according to a source.
Eurozone inflation rises
Eurozone inflation increased in September, at the lowest rate since February 2010. The consumer price index (CPI) rose 1.1% year-on-year this month, down from 1.3% in August. A 1.2% increase was forecast.
The decline was driven by energy and food prices. However, core inflation, which excludes food, alcohol and tobacco was also down 1% from 1.1%.
The news could encourage the European Central Bank to cut interest rates again if recovery across the Eurozone stalls.
"September's Eurozone flash CPI figures confirmed that the ECB enjoys plenty of room to loosen monetary policy further," according to Capital Economics.
Miners drop on China data
A gauge of miners fell, including Fresnillo and Rio Tinto, after Chinese manufacturing data missed analysts' estimates.
China's manufacturing gauge rose to 50.2 in September, down from 50.1 in August, according to a Purchasing Managers' Index from HSBC Holdings Plc and Markit Economics. Economists predicted a reading of 51.2. A reading above 50 signals expansion.
House builder Persimmon edged higher after upbeat data from the UK housing market and an upgrade from JPMorgan to 'overweight'.
The Bank of England (BoE) revealed on Monday that mortgage approvals for house purchases came to 62,226 in August, up from 60,914 in July. It was the biggest jump since February 2008 and beat the forecast for 61,500 approvals, signalling further recovery in the housing market.
Telecom Italia advanced amid rumours that Chief Executive Officer Franco Bernabe will resign.
Crop chemicals supplier Syngenta declined after Citigroup downgraded its rating on the shares
to 'neutral' from 'buy', citing the impact of lower grain prices.
Stora Enso Oyj slumped as UBS lowered its recommendation on the European paper maker to 'sell' from 'neutral'.
Other asset classes mixed
The euro rose 0.10% to the 1.3536 US dollar.
Brent crude futures fell $0.621 to $107.960 per barrel on the ICE.