European stocks struggled for direction on Wednesday, as traders weighed the return of concerns over North Korea against a batch of upbeat corporate news.
Eurozone inflation data confirmed consumer prices rose 1.2% last month, meeting forecasts.
What are markets doing?
The Stoxx Europe 600 index
fell 0.1% to 392.14, after closing with a 0.1% gain on Tuesday.
The U.K.’s FTSE 100 index
rose 0.1% to 7,728.03, on track for its highest close since Jan. 16, according to FactSet data.
France’s CAC 40 index
dropped 0.2% to 5,543.61, while Germany’s DAX 30 index
gave up 0.1% to 12,961.62.
Italy’s FTSE MIB index
slumped 1.4% to 23,965.48 after a leaked draft of the potential political program under a 5 Star Movement and League coalition revealed radical plans to reform the country. The draft was obtained by Huffington Post Italia.
The yield on 10-year Italian government bonds rose 7 basis points to 2.016%, according to Tradeweb.
What is driving the market?
Geopolitical risks were back on the agenda after North Korea overnight signaled its leader, Kim Jong Un, might pull out of next month’s summit with President Donald Trump if the U.S. insists on denuclearization for the isolated nation. The North also canceled high-level talks with South Korea, citing Pyongyang’s objection to military exercises carried out with the U.S.
Meanwhile in Italy, coalition talks between two big populist parties continued and spooked the local financial markets. A draft of the political agenda that the 5 Star Movement and the League are working showed the coalition plans to ask the European Central Bank to forgive €250 billion of Italian debt. It also may suggest allowing eurozone members to leave the monetary union, according to that draft agenda.
The two parties said the draft was an old version that has been modified considerably and they no longer plans to throw Italy’s eurozone membership into question.
What are strategists saying?
“Our stance towards Italian political risks was that it was unlikely to escalate to such an extent as to offset the positive market impact from improving growth. And it is still very early to tell whether these headlines seriously jeopardize our views,” said Themos Fiotakis, co-head of FX and rate strategy at UBS, said in a note.
“Moreover, the path to a stable and viable government goes through various institutional checks and balances, which are likely to require realistic concessions from all involved parties. It is thus even harder to assume that these developments are to any degree informative about the ‘end-game,’” he added.
Eurozone inflation in April was confirmed to have fallen to 1.2% from 1.3% in March, according to the final reading from Eurostat. The print was in line with analysts’ expectations.
Shares of Alstom SA
added 5.1% after the French train giant said profit for its fiscal year rose more than 60%. The company also declared a dividend of €0.35 (41 cents) a share, compared with €0.25 a year earlier.
Shares of Micro Focus International PLC
jumped 8.7% after the software company said it expects revenue for the first fiscal half of 2018 to be better than forecast due to an unusually large license deal of about $40 million that closed earlier than expected.
The company in March announced its then-CEO’s resignation and warned of a revenue drop, spurring a big selloff that bulls viewed as overdone.
Shares of Burberry Group PLC
rose 2.3% after the luxury goods company reported a rise in full-year profit and said it will start a new 150 million pound ($202.8 million) share buyback.
Paddy Power Betfair PLC
rose 5.7% after the gambling company confirmed it is in talks about a potential merger of its U.S. business with FanDuel Inc. Paddy Power shares are now up 13% this week, boosted by a U.S. Supreme Court ruling on Monday that might bring about widespread American sports betting.
climbed 7.7% after UBS lifted the emergency-repairs company to buy from neutral.
On a downbeat note, shares of Elior Group
plunged 15% after the French catering company cut its full-year guidance.