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Europe close: Italian coalition talks, global trade tensions in focus

By Alexander Bueso

Date: Thursday 17 May 2018

Europe close: Italian coalition talks, global trade tensions in focus

(Sharecast News) - The main share indices on the Continent finished with across-the-board gains as markets waited on the details of the government coalition deal between Italy's two main anti-establishment parties, the Five Star and the League.
Earlier, Luigi di Maio, the Five Star's leader, said a deal might be sealed on Thursday, but was later contradicted by officials from the far-right League.

In parallel, the US and China kicked-off their second round of trade talks on Thursday, in Washington DC, even as Brussels tried to defuse tensions with the White House on that same front.

Against that backdrop, at the close the benchmark Stoxx 600 was 0.66% or 2.58 points higher to 395.79, alongside an advance of 0.91% or 118.28 points for the German Dax to 13,114.61 and a rise of 0.98% or 54.38 points to 5,621.92 for the French Cac-40.

Meanwhile, the yield on the benchmark 10-year Italian government bond finished the session just south of unchanged at 2.12%, albeit in volatile trading that saw it carve out a broad 11 basis point range, with the intra-day high at 2.19%.

Nevertheless, and as Michael Hewson at CMC Markets UK pointed out, the FTSE Mibtel was still holding on to an 8% gain for 2018 and Italian bond yields remained well beneath where they were six months before.

The FTSE Mibtel was in fact also still quite close to its recent multi-year highs and alongside it the Cac-40 finished the day at its best levels since 2008.

At least for the moment, some analysts seemed skeptical about Five Star and League's ability to push through radical and disruptive 'reforms' that might pose a risk for the wider euro area.

Speaking on Bloomberg TV, Morgan Stanley's Jim Caron expressed a positive - but somewhat cautious - view on Italy.

Oil & Gas shares were still going strong on Thursday, with the Stoxx 600's gauge for the sector adding another 1.36%, which took to its best levels since mid-2014.

Unsurprisingly, front month Brent crude oil futures were changing hands above $80 a barrel alongside them.

Triggering the move, French oil major Total said it will stop development of phase 12 of Iran's South Pars field if it could not obtain an exemption from US sanctions on that specific project.

On a related note, according to the Journal, the Trump administration "urged" German Chancellor Angela Merkel to drop plans for a gas pact with Moscow if it wants to avoid a trans-Atlantic trade war.

Going the other way, European Commission president Jean Claude Juncker offered to open the EU's car market more to American manufacturers, bit only if the Trump administration lifted its levies on imports of steel and aluminium from the bloc.

The economic calendar was light on Thursday, although data from ACEA showed the year-on-year rate of growth in car registrations in the 27 countries of the European Union recovered from a 5.3% fall in March to show a 9.6% rise for April.

Those figures saw the Stoxx 600's Auto & Parts sub-index jump 1.34%.

"Among the smaller economies, Finland and Greece showed strong gains," said Pantheon Macroeconomics's Claus Vistesen.

"Overall, we don't think the recent months' volatility changes the fact that the trend in these data is 5%-to-6% year-over-year, slower than in 2017 and 2016, but still a little bit above nominal GDP growth, which isn't bad."



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