Europe midday: Shares edge ahead despite caution over US debt deal

European stock markets crept above the flatline on Tuesday, as investors stayed cautious on the US debt ceiling deal struck over the weekend.

The pan-European Stoxx 600 index was up 0.07% by midday, with major bourses mixed.

A group of Republican lawmakers on the party’s hard right on Monday said they would oppose the deal agreed between President Joe Biden and House Speaker Republican Kevin McCarthy, indicating that the package was not guaranteed an easy ride through Congress ahead of a June 5 deadline.

“US markets have not yet had a chance to react to the news that an agreement in principle to the debt ceiling conundrum was reached over the weekend, having been closed on Monday,” said Interactive Investor head of markets Richard Hunter.

“While the initial reaction is likely to be positive, sentiment will be tempered fact that the deal is not yet over the line, with the next hurdle being Congress where there have already been some rumbles of dissatisfaction.”

“In any event, further developments will be keenly awaited this week as the political saga continues to unfold, and until a definitive agreement is reached, markets are likely to resume something of a holding pattern.”

In economic news, business and consumer confidence in the Eurozone fell more than expected in May, suggesting that any economic recovery may be stalling.

The economic sentiment indicator fell to 96.5 in May from a revised 99.0 in April and well below the consensus estimate of 98.9.

Industrial sentiment fell to -5.2, from -2.8 in April, while the services confidence index fell to 7.7, from a revised 9.9 last month. Retail and construction were both weaker with the former down to -5.3, from -0.9 in April while the latter dipped to 0.2, from 0.9 last month.

In equity news, Rolls-Royce and BAE Systems fell after India filed a criminal complaint against the companies for "criminal conspiracy" in the procurement and licensed manufacturing of 123 advanced jet trainers.

Dr Martens shares were also down after RBC Capital Markets downgraded shares of the iconic bootmaker to ‘sector perform’ from ‘outperform’.

"Whilst we view the longer-term growth potential for DOCS as attractive, we are mindful of nearer term challenges particularly for the US market (37% revenues), which do not appear to be adequately reflected in company FY24E revenue guidance or consensus," it said.

Reporting by Frank Prenesti for Sharecast.com