Europe close: German investors breathe sigh of relief, Spain's Dia craters
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18:16 19/04/24
Stocks on the Continent finished mostly higher, tracking the gains seen on Wall Street during the prior session even as investors poured over the results of the elections in the German state of Bavaria at the weekend, although in the background some analysts were sounding a cautious note on the outlook for global stocks as central banks continued to close the liquidity spigot.
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On Sunday, the CSU, the sister party of Angela Merkel's ruling CDU, garnered just 37.2% of the ballots cast; that was 10.5 percentage points less than in 2013 and than their worst showing since 1950.
Nevertheless, according to Holger Schmieding at Berenberg, he results could have been worse, as polls had in fact been pointing to an even worse outcome for the CSU, while the far-right AfD fell short of the 12.4% they garnered in the federal elections held in Bavaria last September.
"Unfortunately, German politics may remain noisy for a while. A significant change in policies is not on the cards, though, under any realistic scenario," the analyst said.
"Even a hypothetical change in coalition in Berlin, say from CDU/CSU-SPD to CDU/CSU-Greens-FDP or a change at the very top from Merkel to somebody else from the CDU would not cause a major policy shift."
By the close of trading, the benchmark Stoxx 600 was near its best level of the session, up by 0.10% or 0.36 points to 359.31, albeit alongside a decline of 0.02% or 0.91 points to 5,095.07 for the French Cac-40.
Germany's Dax on the other hand, which had also recovered from an earlier swoon, was up by 0.78% or 90.35 points to 11,614.16.
Regarding the global monetary policy cycle and its possible impact on shares, on Friday strategists at Morgan Stanley lay the blame for the recent jump in US government debt yields at the feet of the acceleration in the US central bank's pace of balance sheet tapering since 1 October, together with the start of the ECB's own tapering.
In a US equity research note, Morgan Stanley said: "Throw in the blackout period for share buyback programs and its not difficult to see why we had a few accidents this month for risk assets. The problem as we see it is that this liquidity issue is unlikely to get better before the end of the month when share buybacks resume in full force."
Across the remainder of the European Union meanwhile, the spotlight was on the Monday deadline for national governments to submit their 2019 budget proposals to Brussels.
On that note, in Spain the government trimmed its forecasts for the rate of growth in the country's gross domestic product in both 2018 and 2019 by one tenth of a percentage point, to 2.6% and 2.3%, on the back of lower estimates for net imports in each of those years.
In their proposal sent to the EU Commission, officials in Madrid stood by a previous target for Spain's public deficit next year worth 1.8% of GDP, thanks to proposed tax hikes.
Nevertheless, it remained to be seen whether the main opposition parties would allow the budget, in what some observers believed might be an election year, to pass in the Senate.
Spain's main business lobby, the CEOE, questioned the underlying tax revenue assumptions contained in the budget blueprint, also highlighting what it said was a mistaken emphasis on current spending instead of investment.
Over in Italy meanwhile, the central bank said that in August the country's stock of debt declined by €15.5bn from the previous month to reach €2.365trn.
Banco de Italia also reported a 0.6% year-on-year fall in government revenues for the year-to-date to reach €43.7bn.
Italy was also due to send its own budget proposal for next year to Brussels for approval on Monday.
On the corporate front, the focus was on Abu Dhabi investor, Mubdala's, decision to scrap its planned €2.0bn initial public offering of Spanish oil refiner Cepsa in the wake of recent market volatility.
Spanish grocer Dia was also in the headlines after its shares cratered 42% on the heels of management's decision to lower their 2018 profit guidance and scrap the dividend, in large part due to the impact that a weaker Argentine peso and Brazilian peso were expected to have on this year's results.