MarketPulse Europe: Stocks Higher as Trade, Brexit Hopes Brighten the Gloom

By Geoffrey Smith

Europe’s stock markets are set to end the week near their highest level since October, supported by hopes for a truce in the U.S.-China trade war and a Brexit outcome that avoids the worst-case scenario of the U.K. leaving the EU without a transitional deal.

At 05.00 AM ET (1000 GMT), the benchmark STOXX 600 index was up 0.56 points, or 0.2%, at 370.98, while Germany’s Dax and the U.K.'s FTSE 100 were both up around a quarter of a percent.

The best performers are the beaten-up bank stocks, led by Societe Generale (PA:SOGN) after a report saying it’s preparing big job cuts at its investment bank. Trade-sensitive auto and mining stocks are also up, albeit without any major standouts.

Earlier, the Ifo research institute completed this week’s round of generally grim business surveys, saying its closely-watched business climate index fell to its lowest since December 2014, while the forward-looking expectations sub-index fell to a level it last saw in 2012, when European Central Bank President Mario Draghi had to promise ‘whatever it takes’ to save the euro.

Elsewhere, the German statistics office Destatis confirmed initial estimates that the euro zone’s largest economy stagnated at the end of the year, but at least avoided slipping into a ‘technical recession’ – defined as two successive quarterly declines in GDP – that would have soured the mood.

Realistically, there is no way Europe is in as bad shape now as it was back in 2012. Its banks are much healthier and the auto sector has raked in years of record profits, even if both sectors still face daunting challenges from new technology. The ECB will at least talk about new stimulus measures when it meets on March 7, according to its chief economist Peter Praet, and there have even been tentative signs that Germany is ready to relax its fiscal policy to support growth (although the coalition partners will argue for a long time first over how best to do it).

Sure, the risks of Brexit, Italian public debt, U.S. import tariffs and the side-effects from the U.S.-China trade war are large, but none is certain to materialize. The big question, for the short term at least, is whether the trade talks in Washington can continue to justify the increasing sense of optimism that a devastating new round of import tariffs will be avoided.

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