Europe midday: Shares rally on German election result
European markets rallied at midday as investors assessed the results of Germany’s federal election which saw the centre-right opposition CDU/CSU group emerge as the largest party but without an outright majority, while a €4bn takeover of Just Eat Takeaway was also in focus.
The pan-European Stoxx 600 was up around 0.14% at 554.64 in early deals. Germany’s DAX was up almost1% in response to the result.
An alliance of the conservative Christian Democratic Union and Christian Social Union picked up almost 29% of the vote, meaning leader Friedrich Merz looked set to take over from Olaf Scholz as chancellor of Europe’s largest economy if he can form a coalition.
Far-right anti-immigrant, pro-Moscow party AfD came in second place with 20.8% and Scholz’s Social Democratic Party third with 16.5% in its worst performance since world war two – although it could still form a two-party coalition with Merz.
Chancellor-elect Merz warned that Europe would have to become more independent in the face of US "indifference" towards its role in shaping an end to the Russia-Ukraine war. A more pragmatic approach towards defence spending by Europe’s biggest economy saw shares in German arms maker Rheinmetall jump on Monday along with sector peers Hensoldt and Renk.
‘’A dose of more certainty has been injected into European politics. It comes at a crucial time for the continent. Three years on from the invasion of Ukraine, high stakes deal-making between the US and Russia continues, Ukraine is out in the cold and the outcome will have huge implications for security in Europe,” said Hargreaves Lansdown analyst Susannah Streeter.
“There is a dawning realisation that European nations will have to pull together and present a more united deterrent force, and Merz is reading from that script.”
“He has pledged to relax fiscal rules, to increase defence spending and inject the economy with much needed investment. But while Merz seems determined to ease off the so-called debt brake, which limits annual borrowing to 0.35% of GDP, it won’t be straightforward, because he will need a two-third majority in parliament.”
The scale of the task facing the new government was highlighted by a survey showing German business sentiment stagnated in February, with the Ifo business climate index was steady compared to the previous month at 85.2.
In other economic news, eurozone's inflation was confirmed at a six-month high in January, according to figures from Eurostat, with the annual growth rate in the CPI for the single-currency region picking up to 2.5% last month, a rise from 2.4% in December and in line with the preliminary estimate released two weeks ago.
This was the fourth straight acceleration in year-on-year inflation since it hit a three-year low of 1.7% in September and was the highest reading since July.
In equity news, shares in Just Eat Takeaway took off by a massive 52% after private equity outfit Prosus said it would buy the fast food platform for €4.1bn.
Norway's Subsea 7 surged after Italian oil services company Saipem on Sunday said it would merge with its rival in a deal valued at about $4.63bn.
Reporting by Frank Prenesti for Sharecast.com