By Sara Sjolin, MarketWatch
Spanish stocks tumble after calls for vote of no confidence in
PM
European stocks ended a choppy session marginally higher on
Friday as traders weighed up a brewing political crisis in Spain
against better-than-expected sentiment data from Germany and
measured comments from North Korea.
What are markets doing?
The Stoxx Europe 600 Index rose 0.1% to close at 391.08,
trimming its weekly loss to 0.9% The weekly loss breaks the
benchmark's eight-week winning run, which marked its longest
stretch since June 2014.
Spanish stocks were under heavy selling pressure, with the IBEX
35 index ending down 1.7% at 9,826.50 on reports the opposition
Socialist party called for a vote of no confidence on Prime
Minister Mariano Rajoy.
Italy's FTSE MIB index lost 1.5% to 22,398.15 and suffered for a
4.5% loss for the week. The index has been on a roller-coaster rise
this week after the populist coalition of the 5 Star Movement and
League on Monday presented their prime minister candidate to
President Sergio Mattarella.
The U.K.'s FTSE 100 index rose 0.2% to 7,730.28. U.K. markets
are closed on Monday for a local holiday.
Germany's DAX 30 index rose 0.7% to 12,938.01, while France's
CAC 40 dropped 0.1% to 5,542.55.
The euro traded at $1.1670, compared with $1.1722 late
Thursday.
What is driving markets?
Stocks pared losses in the afternoon as attention turned to
Spain where the country's main opposition party called for a vote
of no confidence
(http://www.marketwatch.com/story/spains-rajoy-under-pressure-as-opposition-calls-for-confidence-vote-2018-05-25)on
Prime Minister Rajoy over a corruption case that ended in
convictions for a former party treasurer and other senior members
of the party.
The credibility of Rajoy, who already has a shaky hold on power,
was questioned by the judge who handed down the ruling on Thursday,
according to Reuters. It isn't clear if the opposition socialists
can get enough votes to loosen his grip on power.
The yield on 10-year Spanish government debt jumped 7 basis
points to 1.452%, according to Tradeweb.
European markets had opened in positive territory, rebounding
after Thursday's sharp losses that came in the wake of Trump's
decision to cancel a historic meeting with North Korea. Traders
found some reassurance on Friday in a measured response from
Pyongyang where a senior official said its leader Kim Jong Un is
still willing to meet
(http://www.marketwatch.com/story/north-korea-says-its-still-willing-to-meet-trump-any-time-2018-05-24).
Closer to home, traders were also encouraged by data showing the
recent slide in German business sentiment coming to a halt in May
(http://www.marketwatch.com/story/german-business-sentiment-steadies-in-may-ifo-2018-05-25).
The Ifo business climate index came in at 102.2 in May, unchanged
from April and above economists' forecasts of 101.9 points.
Meanwhile in Italy...
Traders were watching who will get the top jobs in Italy's new
coalition after President Mattarella late Wednesday gave little
known law professor Giuseppe Conte a formal mandate to form a
government. Conte is expected to present his cabinet picks on
Friday and then Mattarella and both houses of parliament need to
approve his choices.
If that happens, Italy will become the largest country in Europe
to be run by an antiestablishment government, which has already put
itself on collision course with Brussels. The two parties have
vowed to challenge the EU's budget rules and slash taxes while
increasing fiscal spending.
The yield on 10-year Italian paper jumped 6 basis points to
2.451% on Friday.
What are strategists saying?
"Southern Europe is showing its true colors again as the
political uncertainty in Italy and Spain has driven their
respective markets lower. The populist parties in Italy, 5 Star
Movement and Lega, are close to forming a coalition, and this has
spooked investor confidence," said David Madden, market analyst at
CMC Markets UK, in a note.
"Mariano Rajoy, the Spanish prime minister, is under severe
pressure as he faces losing his job, or being forced to call a snap
general election. As borrowing costs for the Italian and Spanish
governments rise, we are seeing severe losses on the FTSEMIB and
IBEX 35. Traders despise political uncertainty, and we could see
further investment in northern European stocks and government bonds
while the turmoil persists," he added.
Stock movers
Share of Centamin PLC posted the biggest slide in Europe,
falling more than 18% after the miner cut its 2018 production
guidance at the Sukari gold mine in Egypt by 11%-13%.
Italian and Spanish banks were also lower. Shares of Banco BPM
SpA (BAMI.MI) and Intesa Sanpaolo SpA (ISP.MI) fell 7.3% and 3.2%,
respectively, in Milan, while CaixaBank SA (CABK.MC) and Banco
Santander SA (SAN.MC) (SAN) fell 3.8% and 2.7%, respectively, in
Madrid.
Energy companies declined as oil prices dropped more than 4%
after reports that the Organization of the Petroleum Exporting
Countries and Russia are discussing plans to boost production. The
Stoxx Europe 600 Oil & Gas dropped 1.9%.
Royal Mail PLC (RMG.LN) declined by 2.8% after Berenberg cut the
delivery company to sell from hold, according to Dow Jones
Newswires. Berenberg said Royal Mail faces little profit growth in
coming years, as its customers are likely to scale back on sending
out marketing materials due to the EU's new General Data Protection
Regulation. The GDPR privacy rules come into effect on Friday.
Read:5 things to know about the GDPR rules taking effect
Friday--which could cost big, bad tech billions
(http://www.marketwatch.com/story/5-things-to-know-about-europes-new-data-rules-which-could-cost-big-bad-tech-billions-2018-03-21)
(END) Dow Jones Newswires
May 25, 2018 12:45 ET (16:45 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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