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Europe midday: EU facing 'mass populist rebellion', analysts say
European stocks are continuing to move higher, save in Italy, where traders are still assessing the unexpected results from the country's parliamentart elections which appear to indicate the country's main anti-establishment parties came away with half of the votes.
Also weighing on sentiment, on Saturday US president Donald Trump threatened to target European carmakers with additional levies if Brussels retaliated against the White House's new tariffs on aluminium and steel.
"This constitutes a "mass populist rebellion", not just for Italy but also for the European Union, said Saxo Bank FX strategist John J. Hardy.
In particular, Hardy pointed out that a government in Rome led by the 5Star party would slow down progress towards banking union in the single currency bloc.
With 94% of votes counted, according to Italy's Interior Ministry the 5Star party came away with 32.20% of the ballots cast - roughly five percentage points more than expected - while the Lega party garnered 17.71% of the vote, five percentage points more than Silvio Berlusconi's Forza Italia.
As of 1150 GMT, the benchmark Stoxx 600 was trading 0.55% or 2.01 points higher at 369.05, alongside a 0.26% or 13.43 point gain on the Cac-40 to 5,150.09, while Spain's Ibex 35 was adding 0.43% or 40.70 points to 9,571.80.
Meanwhile, the yield on the benchmark 10-year Italian government bond was five basis point higher to 2.02% and that on similarly-dated Spanish debt down by four basis points at 1.52%.
In parallel, the FTSE Mibtel had come off its worst levels of the day but was still trading lower, erasing 0.42% to 21,819.26, led by falls in shares of Italy's main lenders, Banca Monte dei Paschi di Siena, UniCredit, UBI Banca, Intesa Sanpaolo, Mediobanca and Assicurazioni Generali.
Commenting on the results of Sunday's Italian vote, economists at Berenberg said: "The outlook for further pro-growth reforms in Italy looks dim for now. Instead, Italy could be heading for partial reform reversals and an increase in public spending that may lead to some conflict with Italy's partners in the EU.
"If the 5Stars focus more on their anti-corruption drive than their expensive spending promises, the outlook may be less concerning."
But it wasn't all bad news at the start of the week.
Also on Sunday, it was announced that 66% of the German SPD party's voters had backed forming a grand coalition with Chancellor Angela Merkel's CDU/CSU, putting an end to the longest political impasse in modern German history.
Significantly, the coalition programme called for a focus on domestic issues and euro area reforms.
Nonetheless, economists at Barclays Research cautioned that: "any reform requiring either implicit or explicit German fiscal backing, such as debt mutualisation or the establishment of a euro area Finance Minster with an independent budget, seems unlikely in our view.
"Any such reform would also need support from all member states and, following Prime Minister Rutte's remarks on Friday, the Netherlands would likely oppose it."
Against that backdrop, come Monday morning strategists at JP Morgan reiterated their 'overweight' stance on Eurozone equities, citing - among other factors - stocks' "undemanding" valuations relative to fixed income.
Weak economic data
On the economic front, IHS Markit's 'final' euro area service sector purchasing managers' index for January printed at 56.1, which was below a preliminary reading of 56.7 and far beneath January's print of 56.8.
The chief reason for the downward revision was a lower-than-expected print on the French PMI of 57.3, versus a preliminary estimate of 57.8.
Data on euro area retail sales volumes for January was also short of the mark, revealing a dip of 0.1% month-on-month (consensus: 0.3%).
However, according to Eurostat, in year-on-year terms they advanced by 2.3% (consensus: 2.0%).
Meanwhile, ELSTAT reported that Greece's gross domestic product edged higher by just 0.1% quarter-on-quarter over the three months ending in December (Barclays: 0.5%).
Axa craters
In the corporate space, France's Axa agreed to buy American property and casualty peer XL Group for about $15.3bn in cash, for a 33% premium versus XL's closing price on Friday.
Elsewhere, it was reported that Airbus would move to slash its headcount by 3,600 people in the wake of lower rates of production for its A380 and A400M models.
At the weekend, Siemens announced a pricing range for the upcoming initial public offering of its Healthineers unit of between 26 and 31 a share, for a total valuation ranging from 26-30bn.