Stocks Edge Higher in Wake of European Elections
|05/27/2019 | 09:31 am|
By Max Bernhard
Global stocks gained Monday after voters in European parliamentary elections showed broad but more fragmented support for pro-EU parties, while populist factions gained less ground than expected.
In Europe, the pan-continental Stoxx Europe 600 rose 0.2%, buoyed by the autos and parts subindex, which gained 1.6% as car makers shares rose on Fiat Chrysler's and Renault's confirmation of merger talks.
The euro was slightly higher against the dollar at $1.12 and German government bond yields, considered the benchmark in the region, were down slightly at negative 0.13%.
In Asia, markets were mixed, as President Trump talked trade with Prime Minister Shinzo Abe on his visit to Japan. The Shanghai Composite closed 1.4% higher, while the smaller-cap Shenzhen closed up 2.5%. Hong Kong's Hang Seng ended the day 0.2% lower and Japan's Nikkei up 0.3%.
Financial markets in the U.S. and U.K. were closed Monday for holidays.
Italy's FTSE MIB index traded 0.6% higher, driven by Fiat Chrysler shares, which were up 10% after the Italian-American car maker unveiled a proposal to merge with Renault. Shares of the French company traded 14% higher, while those of rival Peugeot were 3.1% lower.
Fiat Chrysler's merger proposal is surprising but the company hardly left out any car makers in its search for possible partners, said Frank Schwope, an analyst at German bank Nord LB. "Rather, one might have expected closer cooperation with the PSA group," he said.
Both the French and Italian governments indicated Monday that they wouldn't immediately stand in the way of the proposed tie-up between Fiat and Renault.
Both the French and Italian governments indicated Monday that they view the proposed tie-up between Fiat and Renault favorably.
In the U.S., futures pointed to gains of 0.05% for the Dow Jones Industrial Average and 0.01% for the Nasdaq-100, while pointing 0.01% lower for the S&P 500.
In Sunday's European parliamentary elections, the traditional coalition of conservatives and social democrats lost its majority, but together with liberals and greens, pro-EU groups will still hold a clear -- though more fragmented -- majority.
Euroskeptic and antiestablishment groups and parties increased their weight in EU policy-making, but gained less than expected.
Despite gains in the number of seats, populists wouldn't be able to change the direction of Europe because they are unlikely to be able to form a single parliamentary group and "although the European Parliament is powerful, it does not set the agenda for Europe," David Mackie, JP Morgan's chief European economist, said in a note.
Commerzbank chief economist Joerg Kraemer said it would get even more difficult to find majorities in the EU to pass policy reforms and negotiate trade deals. "This will burden trade talks with the U.S., which will probably end up imposing car tariffs," he said.
Euroskeptics made significant gains in Italy, where Deputy Prime Minister Matteo Salvini's League Party was set to increase its presence from five to 24 seats. The result could embolden Italy to intensify the budget conflict with the EU, said Mr. Kraemer.
In Greece, where Prime Minister Alexis Tsipras called surprise snap national elections Sunday after his left-wing Syriza party suffered a defeat in the elections, 10-year government bonds yielded 3.12%, down from 3.34% on Friday, and the Athex composite traded 4.4% higher. The center-right New Democracy party is the strong favorite to gain power.
Italian 10-year government bonds yielded 2.58% Monday, down slightly from Friday. The spread over similar German government bonds, often seen as a barometer of eurozone cohesiveness, remained elevated at 2.68 percentage points.
Italian 10-year government bonds yielded 2.58% Monday, down slightly from Friday. The spread over similar German government bonds, often seen as a barometer of eurozone cohesiveness, remained elevated at 2.7 percentage points.
In the U.K., Nigel Farage's Brexit Party was projected to come in first with over 30% of the vote, according to partial results. The outcome could pressure the ruling Conservative Party as it chooses a new leader in the wake of Prime Minister Theresa May's planned exit. The pound was slightly higher against the dollar at $1.272.
The WSJ Dollar Index, which tracks the dollar against a basket of currencies, rose 0.1%. In commodity markets, oil prices traded largely flat. Brent crude fell 0.5% to $58.32 a barrel. Meanwhile, gold prices rose 0.1% to $1,286.35 an ounce. Bitcoin futures rose 9% to $8,875, their highest level in over a year.
Write to Max Bernhard at Max.Bernhard@dowjones.com