And finally.... the Wall Street rally has just fizzled out in late trading.

The Dow Jones industrial average has closed flat, at 24,464 points.

The S&P 500 gained 0.3%, though, while the Nasdaq ended 0.9% higher - with tech stocks and energy companies rallying.

Investors had some mixed US economic data to digest today, with new unemployment claims rising and durable goods orders dropping.

US traders are now scrambling home for Thanksgiving, so the market will be closed tomorrow.

We’ll be back on Thursday, though. Until then, goodnight! GW

Just spotted this.... Mark Carney, governor of the Bank of England, has taken British citizenship today.

That’s via Jenny Headlam-Wells, mayor of the London borough of Camden.

Back on Italy..... and Rome’s leaders are refusing to back down over their tax and spending plans for 2019, despite the EC’s opposition:

My colleague Angela Giuffrida reports:

Italy’s deputy prime minister Matteo Salvini has said he is prepared to confront EU leaders after the European commission rejected his country’s draft 2019 budget for a second time, while calling on them to “respect the Italian people”.

Italy is facing sanctions after the commission said in a report that the government of the far-right League and anti-establishment Five Star Movement had seriously violated fiscal rules.

Mystery solved....

With the markets so choppy this autumn, investors need to take a few deep breaths, and brace for more storms.

Or, as analysts at Citigroup put it to clients today:

“In stormy seas, cursing the waves won’t bring calm.

We believe investors need to adapt portfolios for both a tighter U.S. monetary policy environment, and material, unpredictable political risks.”

In practice, that means looking at emerging markets, such as in Asia, and healthcare stocks. It also means not fretting too much about America going into recession in 2020, or later....

Marketwatch has more details.

Wall Street is also enjoying a better day.

With two hours trading to go, the Dow is holding onto its gains -- currently up 180 points at 24,646 points (up 0.75%).

Three companies who led yesterday’s selloff are now leading the recovery; Oil producer Chevron (+2.5%), construction machinery giant Caterpillar (+2.2%) and Microsoft (+2.25%).

Traders even have a special guest - more than a month early!

Here’s David Madden of CMC Markets on today’s stock market recovery, and the Italian budget row:

European stock markets have gained ground today even though the tension between the Italian government and the EU has risen.

The EU announced that Italy will be disciplined for their budget, and this could cause massive instability in the region. If tensions continue to be strained, it might hurt the Italian government bond market, which could weaken the banking system. Brexit is still doing the rounds in the news, but traders are unlikely to take any notice until there are new developments.

Bart Hordijk, Market Analyst at Monex Europe, suspects the Italian budget row will bubble on into 2019:

”The fact that there are no easy compromises for both parties involved is for us an indicator that this conflict will continue to simmer in the background for the coming months.”

A top bond expert reckons there’s a small chance that Italy ends up defaulting on its debts.

PIMCO’s chief investment officer for global fixed income, Andrew Balls (brother of former-politician-and-occasional-dancer Ed) also suggested that Rome could issue a parallel currency, or even return to the lira.

Reuters has more details:

“Italian sovereign default is unlikely but it is not a zero probability. The more plausible scenario is a combination of issuing a parallel currency or even redenomination,” Balls said at a conference in London.

“California issued a parallel currency in 2008 so if it could happen there it is not obvious it couldn’t happen in Italy.”

Short-term Italian debt is also strengthening, presumably on hopes of an eventual resolution between Italy and Brussels.

If Italy refuses to cut its spending plans, it could ultimately be fined 0.5% of its GDP.

That’s the end of a long process, though, as this chart shows:

Italy’s GDP in 2017 was around €1.7trillion, so a fine could reach almost €8bn.

Readers may well wonder how that would improve Italy’s fiscal position.

There’s little reaction to the EC’s rejection of Italy’s budget in the markets.

Italian bonds are holding onto their earlier gains (driven by hopes of a compromise), meaning 10-year debt is trading at a yield of 3.52% (from 3.6%).

Hinesh Patel, portfolio manager at Quilter Investors, says investors expect a reconciliation:

“In some respects this is a win for the populists, who will use this decision to fuel criticism of the EU policymakers they cast as the enemy of the Italian electorate. But Italy is at risk of divorcing itself from economic realities if it presses ahead despite this ruling from the European Commission.

“The immediate reaction from markets suggests that reconciliation is expected. Although Italian bond yields have been increasing for several months, a clear signal that the bond market’s confidence in Italy is fragile. The result is that the government’s ability to borrow diminishes and the credit they can obtain comes at a higher cost. This is a crucial factor when you consider that the bumper budget intended to stimulate the economy will require increased government borrowing.

“Despite the nervousness this stand-off may cause in financial markets, it is worth remembering that the European Commission has these controls and governance capabilities over member states for a reason. At the height of the European sovereign debt crisis 24 countries were under Excessive deficit procedures, a burden which France, for instance, has only just been able to shake off. While it is a surprise that we’ve reached this impasse, the European Commission is ultimately just delivering on its mandate.”

The head of Italy’s coalition government, prime minister Giuseppe Conte, has hit back.

Conte insists that his country’s “excellent” budget should go ahead, and hope to persuade the EC of his case this weekend.

Reuters has the details:

The Italian government’s 2019 budget is “excellent” and in the interests of both Italy and Europe, Prime Minister Giuseppe Conte said on Wednesday.

Earlier in the day the European Commission took its first step towards disciplining Italy over the budget, setting up a confrontation that could last months and eventually lead to fines.

Conte reiterated he would hold talks with European Commission President Jean-Claude Juncker on Saturday. “Obviously during the course of the conversation we will finally have the chance to talk in detail and fully explain this budget,” he said.

Analyst Emanuele Canegrati of City trading firm BP Prime says the EC’s ruling is blow to Italy (although not an unexpected one...)

Danske Bank’s Aila Mihr points out that European ministers will have their say next month:

The FT’s Mehreen Khan reckons the EC pulled its punches today, and any knock-out blow probably won’t come for some months:

EC Vice-President Valdis Dombrovskis has told reporters in Brussels that the Commission had no choice...

“With regret, that today we confirm our assessment that Italy’s draft budget plan is in particularly serious non-compliance with the Council recommendation of 13 July.”

“We conclude that the opening of a procedure for excessive deficit based on the debt is thus warranted.”

European commissioner Pierre Moscovici says the door is still open for Italy to change it budget plans to meet EC rules....

Despite October’s rising deficit, the UK government argues that the public finances are on a firmer footing:

A HM Treasury spokesperson says:

“This is our best year-to-date borrowing performance since 2005, thanks to people’s hard work and the government’s careful management of the public finances

Our balanced approach is getting debt falling while supporting our vital public services, keeping taxes low, and investing in Britain’s future.”

More retail pain: Furniture group Ikea has said 350 UK jobs are at risk, as part of a shake-up of its global business.

In total, Ikea is planning to shed 7,500 jobs world wide, as it strives for “a greater focus on adding value to its customers”.

But....Ikea is also planning to create 11,500 new jobs in the next few years - by opening 30 new “touchpoint” Ikea stores in city centres, and by investing in its digital and logistics operations.

The OECD has also weighed in on Brexit, by backing Theresa May’s draft withdrawal agreement.

It has also called for Britain to force “the closest possible relationship” with the EU after the divorce - something Theresa May will be discussing with EC president Juncker tonight.

Matt Whittaker of the Resolution Foundation has dug into today’s public finances, and shows how the UK is making little impact on its debt mountain:

The jump in UK borrowing last month may show that the government is, as promised, easing the chains of austerity (a little), as the economy slows.

John Hawksworth, chief economist at PwC, explains:

Public borrowing in October 2018 was £1.6 billion higher than in October 2017, reflecting rapid growth in government spending last month but only a modest rise in tax receipts.

This is consistent with indications from business surveys and the latest retail sales data that the economy slowed markedly as we moved into the autumn, due in large part to increased uncertainty around Brexit.

The rise in UK borrowing last month will worry chancellor Philip Hammond, says Andrew Wishart of Capital Economics.

He writes:

The first public finances figures released since the Budget bucked the recent trend of improvement. Government borrowing of £8.8bn last month (consensus £6.2bn, CE £7.0bn) was up from £7.2bn in the same month last year and marked the largest October deficit for three years. The increase in borrowing compared to last year was due to a £2.2bn rise in “other” (most likely departmental) spending. This leaves borrowing in the fiscal year to date down by 30% compared to last year. While this is still the lowest since 2005, it is above the OBR’s October Budget forecast for a 36% reduction over the year as a whole.

This could be a worrying sign for the Chancellor. If this trend continues, the giveaways in the October Budget could see him breach his near-term fiscal targets. And if there is a no deal Brexit, the resulting economic slowdown would probably cause the public finances to deteriorate further. Admittedly, this could be offset to some extent by the UK not paying part of the financial settlement.

Ross Campbell, ICAEW Public Sector Director, points out that Britain’s public finances depend on a good Brexit deal:

“In the most recent Budget, the Chancellor pledged further investments into the NHS, roads and schools, and again loosened his target for deficit reduction. It looks like Hammond and May have bet on a positive outcome from Brexit, assuming a deal would be struck and pass parliament. The expectation that a Brexit ‘bounce’ would deliver a spike in business and investment following an agreed deal gave the Chancellor the room to put off the hard decision on putting up taxes. With no clear support in Parliament for the deal, this is a high risk strategy.

“We need to remember that if the Government is not able to get its deal with the EU through parliament then all such bets are off. In his budget speech, the Chancellor admitted as much. If the deal doesn’t get through then even if negotiations continue, it is more than likely that the budget will need to be revisited.”

Economist Philip Shaw of Investec says the big picture is that UK public finance are improving, despite October’s stumble.

Britain’s deficit swelled to £8.8bn last month because the government’s income didn’t keep pace with spending.

The Office for National Statistics explains:

Central government receipts in October 2018 increased by 1.2% compared with October 2017, to £59.9 billion; while total expenditure increased by 7.7% to £65.4 billion.

Much of this annual growth in central government receipts in October 2018 came from Value Added Tax (VAT), Income Tax and tobacco duties; while interest and dividend receipts (largely dividend transfers from the Bank of England Asset Purchase Facility Fund) (BEAPFF) have fallen on October 2017.

European stock markets are clawing their way back from yesterday’s selloff.

The main indices are all higher, partly due to hopes of detente between Rome and Brussels over the Italian budget.

Despite Kevin Hassett’s claim that Trump’s tax policies are working, America’s trade deficit with China has actually grown this year.

The gap hit $375bn in 2017, and is on rack to exceed this level in 2018 thanks to rollicking imports of China-made technology, electrical equipment, machinery and clothes.

Analysts at JP Morgan have warned that the US-China trade war will hurt economic growth.

They told clients:

“We forecast that the US imposes an additional 25% tariff on virtually all goods imports from China early next year. This will drag materially on activity in China and could accelerate the decline in global business confidence now underway.”

One of President Trump’s top economic advisers has suggested there could be a case for “evicting China” from the World Trade Organisation (WTO).

Kevin Hassett, chairman of the president’s Council of Economic Advisers, told the BBC that China had “misbehaved” as a member of the WTO, claiming:

We never really envisioned that a country would enter the WTO and then behave the way that China has. It’s a new thing for the WTO to have a member that is misbehaving so much.

He also claimed that the WTO was failing the US, as it takes so long to rule on trade disputes:

“it takes five or six years and then the damage is done”.

Hassett also claimed that Donald Trump’s hardball strategy on international trade is working. That’s questionable, when the US Trade Representative has ruled that China hasn’t change its policies....