Europe Markets Extend Recovery on Political Chatter By

© Reuters.

By Geoffrey Smith — Europe’s stock markets opened broadly higher on Monday, albeit supported by little other than weekend words from President Donald Trump and his staff on the trade war with China, and from German government officials hinting at possible fiscal stimulus measures for the euro zone’s largest economy.

By 5 AM ET (0900 GMT), the benchmark Euro was up 0.5% at 371.53, while the U.K. and the German were both up 0.7%.

The Italian was the top performer of the morning on hopes that a new government can be cobbled together to pass a budget for next year without the need for new elections.

However, Helen Thomas, CEO of the consultancy Blonde Money in Oxford, noted that the political momentum remains with the right-wing Lega Party of Matteo Salvini, and that a new government led by it remains the likeliest outcome.

“If a discredited cobbled-together coalition or a bunch of technocrats has to get Italy through its Budget process, anti-establishment sentiment will only rise,” Thomas said in a morning brief.

All other things being equal, that would mean that a relief rally for Italian stocks could be short-lived, given that Italy’s debt dispute with the EU – a key weakness in the euro zone’s economic and political architecture – would be only deferred rather than settled. However, there’s an upside to buying even a few months, since that could be all Italy needs for the broader budgetary picture in Europe to become more accommodating.

Over the weekend, German Finance Minister Olaf Scholz dropped hints about Berlin loosening the purse strings to support an economy that is slowing sharply under the effects of the U.S.-China trade war.

Frederik Ducrozet, a strategist with Pictet Asset Management, noted that Scholz’s comments were deliberately vague “but anyway, the fiscal genie is out of the bottle and the markets are listening,” he said via Twitter.

On a light day for data, U.K. homebuilding and realtor stocks outperformed after tentative signs of life in the Rightmove House Price Index, which suggested that the key London market may be bottoming out. Realtor Foxtons (LON:) rose 3.4%, while upmarket builders Redrow (LON:) and Berkeley Group (LON:) both rose 1.0%.

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