Finally, Italy’s stock market has closed 1% lower, as political turmoil swirls again.

The FTSE MIB shed 230 points to finish at 20.485.

Other European markets also weakened, with the UK’s FTSE 100 down 60 points, or 0.9%, at 7,125 -- continuing August’s choppy trading.

Edward Park, Deputy CIO at investment firm Brooks Macdonald, says the looming collapse of Italy’s government was a risk:

Ultimately, the decision for new elections rests with the Italian President Sergio Mattarella, but these latest developments add to uncertainty for markets.

Why it is important: If we do see an election it is likely to be neatly parked within the end of October corridor of uncertainty for the Eurozone. On 20th October we have the deadline for the Italian budget, 31st the Brexit deadline and on 1st November a change of leadership at the major EU institutions.

The early rally across Europe’s stock markets is fading.

You can sense the summer lull, with the FTSE 100 now up just 2 points (0.04%), and Germany’s DAX down eine kleine 5 points (-0.05%).

Wall Street is also expected to be subdued today, with the futures market predicting very little action.

So here’s a quick recap:

UK factories have been hit by weak demand and orders this month, as trade war tussles and Brexit uncertainty weigh down.

The CBI, which conducted the report, says it underlines the importance of avoiding a no-deal Brexit.

The pound has weakened after PM Johnson called on Europe to help find an alternative to the Irish backstop - but was rebuffed by Brussels.

Global investors are hoping that central banks will ease monetary policy to support growth, especially after president Trump urged the Federal Reserve to slash borrowing costs aggressively.

The CEO of BHP Billiton has added to concerns over global growth, by warning that demand for commodities will be hit by the ongoing US-China trade war.

And in other news...

Today’s CBI survey shows that British manufacturing is finding life tough, warns economist Howard Archer of EY Item Club:

David Madden of City spreadbetters CMC Markets says the report isn’t as bad as feared:

Reuters’ Andy Bruce points out that factory bosses aren’t expecting to hike prices in the next few months.

Just in: British factories continue to suffer from Brexit uncertainty, trade conflicts, and the global slowdown.

The CBI’s monthly survey of UK manufacturing, just released, shows that total order books and export order books are both below normal this month, compared to a typical August.

However, things appear to be improving compared to July, which was particularly disappointing.

The CBI says:

• 15% of manufacturers reported total order books to be above normal, and 28% said they were below normal, giving a balance of -13% (from -34% in July).
• 11% of firms said their export order books were above normal, and 26% said they were below normal, giving a balance of -15% (from -32% in July) – broadly in line with the long-run average of -17%

Chemicals, mechanical engineering and plastic producers all grew, but paper, printing and media were the main drag on growth.

Anna Leach, deputy chief economist at the CBI, says UK industry seems to be stabilising, but a no-deal Brexit crisis would plunge the sector into deeper problems:

“Despite signs of stabilisation in the data this month, UK manufactures remain on the receiving end of a double whammy: the slowdown in the global economy and Brexit uncertainty. Trade tensions between nations such as China and the US only exacerbate the demand uncertainty facing UK manufacturers.

“As we get closer to October, it’s crucial that the new Prime Minister secures a Brexit deal ahead of that deadline and gets on with pressing domestic priorities, from improving our infrastructure to fixing the apprenticeship levy.”

Sterling is weakening this morning, after prime minister Boris Johnson tried to rip up the Irish Backstop at the heart of the current Brexit agreement.

Johnson issued a four-page letter last night, insisting that the “anti-democratic” backstop is removed. Instead, he wants new “flexible and creative” arrangements to manage a soft border between Ireland and Northern Ireland after Brexit.

This hasn’t gone down well in Europe, which is committed to avoiding a hard border between Northern Ireland and the Republic. EU diplomats have concluded that Johnson is making a “clear attempt” to kill off negotiations - even as he prepares to meet Angela Merkel and Emmanuel Macron.

This has knocked the pound back below $1.21 for the first time this week.

This is rather astonishing.

Germany’s government is planning to auction €2bn of new 30-year government bonds tomorrow, with a zero coupon. That means Berlin would not make any interest payments to bond-holders during the lifetime of the bund.

Instead, it would simply take your money and promise to return it in 2049 - by which time inflation could have eroded much of its value.

This highlights how bond yields have plunged to record lows, as investors have driven prices to new highs.

Existing German 30-year bunds are currently changing hands at a negative yield, of -0.15%, in the bond market. So, Berlin seems to be pricing its bond correctly. But it’s still A Moment.

Such low yields imply pessimism over long-term growth prospects, and a real appetite for capital preservation (German bunds being safe as häuser).

But it makes it very hard for pension funds, insurance firms, and fund managers trying grow their clients’ wealth.

Ralf Preusser, global head of rates strategy at Bank of America, has warned clients that Germany risks a “buyers’ strike,” if investors decide to seek better returns elsewhere.

Paul McNamara of Swiss asset manager GAM has tweeted about the sale:

The boss of BHP Billiton, one of the world’s biggest mining companies, has warned that the US-China trade war is hitting demand.

After reporting BHP’s best profits in five years, Andrew Mackenzie warned that the dispute will “put a dampener” on world growth.

That could potentially hurting sales of iron ore, copper and coal, particularly to China - BHP’s biggest customer.

He said:

“There’s obviously been a slight cooling in appetite based on some of the concerns we have seen in the short-term for the global economy. We are not without some consideration as to what might be around the corner.”

Mackenzie also warned that the rise of nationalism, and governments that interfere in markets (yes you, Donald!) pose a threat to the global economic system.

Donald Trump’s latest attempt to force US interest rates down pushed some Asia-Pacific markets higher today.

Lower borrowing costs, and higher growth, would be good news for Japanese exporters, Australian miners and South Korean tech firms.

Here’s some closing prices:

• Japan’s Nikkei: up 114 points or 0.5% at 20,677
• Australia’s S&P/ASX 200: up 77 points or 1.2%
• South Korea’s KOSPI: up 3 points, or 1.15%, at 258

My colleague Martin Farrer explains what investors are looking for:

Investors now overwhelmingly expect the Fed to cut rates again at its 17-18 September policy meeting. The Fed cut rates in July for the first time in a decade to mitigate the effects of the US-China trade row and a global slowdown. The rate is very low by historic standards but nearly two points higher than the years after the 2008 crisis when it fell to 0.5%.

Analysts will now shift their focus to the release of minutes of the Fed’s July meeting which are due out on Wednesday. Traders are also keenly waiting on the Fed’s Jackson Hole seminar and G7 summit in Biarritz this weekend for clues on what additional steps policymakers will take to bolster growth.

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

Can policymakers save us from recession? That’s the question on the lips of investors this morning, as hopes of new stimulus packages build.

Stocks have jumped in Asia overnight, following solid gains in Europe and in New York on Monday. After last week’s rush to sell shares, traders are judiciously picking them up again, in anticipation of central bank stimulus.

The European Central Bank seems certain to loosen monetary policy in September -- imposing steeper negative rates on banks and perhaps kickstarting its QE bond-buying programme again.

The Federal Reserve may also ease next month, caving into pressure from Donald Trump to cut rates.

Yesterday the president demanded that the Fed slash a whole percentage point off rates “over a fairly short period of time”, which is certainly more radical than Wall Street, or the Fed itself, had in mind.

Trump also insists that America isn’t heading into recession -- but if he’s wrong, it’s clear that the White House will point the finger of blame towards the Fed, rather than its own belligerent trade policies.

Yesterday, the Bundesbank warned that Germany’s economy could be sliding into recession right now. With orders for cars and industrial equipment sliding, GDP could shrink this summer for the second quarter in a row.

The bank cited Brexit and the US-China trade war as key factors, adding:

“The overall economic performance could decline slightly once again. Central to this is the ongoing downturn in industry.”

That is intensifying the pressure on Berlin to boost spending, with chatter about a €50bn stimulus package.

Last night the Dow gained 249 points, taking it back over the 26,000 point mark for the first time in a week.

As Jim Reid of Deutsche Bank points out, markets have now recovered a large chunk of their recent losses.

Last night the S&P 500 ended +1.21% which means it’s now roughly an equal distance apart from the intraday post Trump trade tweet lows of early August and the highs prior to the tweet at the end of last month.

It’s also on a three-day winning run and believe it or not, has actually risen for seven of the last ten days even if it might not feel like it.

But government bond yields are still at, or near, historic lows -- showing that the markets are still anxious about growth prospects.

Also coming up today

The CBI’s monthly healthcheck on Britain’s factories is likely to show that growth and new orders remained subdued this month, amid Brexit uncertainty and weaker global growth.

The agenda

• 11am BST: CBI survey of UK industry in August