(Photo: AFP)
European equities fell Wednesday on flaring Italian fiscal troubles, shrinking German economic growth, and uncertainty over Britain's Brexit deal, analysts said.
Milan shed more than one percent after Italy's populist government defied the European Commission by sticking to its big-spending budget plan, risking financial sanctions in a high-stakes standoff that could spell fresh trouble for the eurozone.
Frankfurt also slid as official data showed Germany's powerhouse economy shrank 0.2 percent in the third quarter, in news which sent the euro sliding.
The British pound meanwhile dropped along with London stocks as investors assessed the outlook of a draft Brexit deal agreement.
Uncertainty weighs
"Uncertainty around Italy and Brexit are weighing on sentiment," noted CMC Markets analyst David Madden.
"The Italian government made no changes in relation to their budget proposal, and Italian government bond yields are higher on the back of it as dealers are nervous about the potential fallout.
"(British) Prime Minister May has reached an agreement with the EU over the withdrawal, but there are doubts if she can sell it to her own part," Madden added.
Sterling had won a major boost Tuesday after Britain and the European Union revealed they had reached a draft Brexit deal.
However the currency fell back Wednesday, in line with the FTSE 100 shares index, because the agreement faces a number of hurdles before being given the green light.
May will seek her cabinet's approval Wednesday for a long-awaited divorce deal with the EU and even if approved, hardline Brexiteer MPs warned they will seek to block it in parliament.
Most ominously for May, the Northern Irish Democratic Unionist Party (DUP), which props up her government, threatened to break their alliance over reports of a special arrangement for the British province.
Hot tin roof
"The pound is behaving like a cat on a hot tin roof -- leaping to a month high on Tuesday before sagging on Wednesday as the DUP's reservations about the government's Brexit gambit emerged," said David Lamb, head of dealing at Fexco Corporate Payments.
"After two years of potholed progress, Britain's Brexit negotiations are approaching the end of the road. Expectations, and heartbeats, are accelerating – but it’s still not clear if what lies beyond is a smooth exit lane or an abyss."
Eurozone sentiment was hit also after Germany reported a 0.2-percent decline in gross domestic product (GDP) between July and September.
That was the first fall in the measure since early 2015 and worse than forecast by analysts after months of troubling economic indicators.
Sentiment took another knock from this week's slump in oil prices.
Both main crude contracts plunged Tuesday -- Brent lost 6.6 percent and WTI 7.1 percent -- on oversupply fears just as demand falters in the face of the China-US trade war and easing economic growth.
Prices, which are down more than a fifth from their four-year highs seen in early October, posted slender gains on Wednesday.