Tuesday 20 March 2018

Euro stocks rise as markets unmoved by election turmoil

German Chancellor Angela Merkel's Christian Democrats topped the poll
German Chancellor Angela Merkel's Christian Democrats topped the poll
Thomas Molloy

Thomas Molloy

European shares surged yesterday as investors shrugged off worries about political instability in many parts of Europe.

Here in Ireland, investors were sanguine despite the unprecedented success of Sinn Fein and independents and Tanaiste Eamon Gilmore's decision to quit less than two weeks after Justice Minister Alan Shatter's resignation.

The ISEQ rose while the cost of borrowing on the bond markets was little changed.

Goodbody Stockbroker's analyst Dermot O'Leary said the election results here were likely to lead to a change in policy, with the projected €2bn cuts in October's Budget now unlikely.

"There will be a reaction from the Government," the economist said. "It's odds-on that the number will be closer to €1.5bn at this point."

Stock markets did even better in countries where centre parties performed well.

Italian assets surged and German shares hit all-time highs as solid election showings by pro-European forces in both countries provided an antidote to Eurosceptic gains in France, the UK and Greece.

Though nationalists scored stunning victories in a number of weekend votes, Italy's pro-European Prime Minister Matteo Renzi's centre-left Democratic Party was on course for a resounding win over the anti-establishment Five Star Movement of former comic Beppe Grillo.

For investors, it was a relief after polls had pointed to a much closer contest that would have raised fresh questions over the country's ability to keep its already wobbly economic reform programme on track.

Italian shares jumped almost 3pc in heavy opening trade and benchmark government bonds were on course for their biggest one-day percentage gain since the start of January 2013.

In Germany, where Chancellor Angela Merkel's Christian Democrats finished top, the Dax index climbed 1pc to a record high, while there was a 1.4pc bounce for Greek stocks.

"In Italy we've seen voters endorsing the policies of Renzi, whose party came out as the strongest party in these elections and this seems to be taken very positively by the market," said Christian Lenk, a fixed income strategist at DZ Bank.

National benchmark indexes advanced in all of the 18 western-European markets open today, except in Iceland and Switzerland.

The euro climbed to $1.3642 on the election relief in Italy, though it remained within touching distance of a three-month low having been pushed down in recent weeks by strong signals the ECB will cut interest rates next week.

Officials have said they're working on a package of possible measures for the June 5 policy meeting, including interest-rate cuts and liquidity injections, while holding out the prospect of quantitative easing as a more powerful option.

Asian shares also had a solid day, hitting a one-year high thanks to a strong session on Wall Street on Friday – also helped by an apparently decisive win for billionaire Petro Poroshenko in Ukraine's presidential election. (Additional reporting Reuters and Bloomberg)

Irish Independent

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