DAX takes a small step higher, euro falls as result signals potential turbulence ahead
European stocks ticked higher Monday as investors digested the outcome of Germany's general election, which delivered a win for Chancellor Angela Merkel's conservative alliance but signaled potential turbulence ahead.
The Stoxx Europe 600 index added 0.1% to 383.55, with only the oil and gas sector holding gains. On Friday, the index ended up by 0.1% (http://www.marketwatch.com/story/european-stocks-shaken-by-north-korea-but-strong-pmis-keep-losses-in-check-2017-09-22) and marked a weekly advance of 0.7%.
German stocks reached for a small gain. In Frankfurt, the DAX 30 was up 0.1% at 12,600, but had opened in the red.
The victory of Merkel's center-right bloc (http://www.marketwatch.com/story/germanys-anti-immigrant-party-set-to-be-first-in-more-than-50-years-to-enter-parliament-2017-09-24) over the center-left Social Democrats all but assures a fourth term for the Chancellor. But Merkel's Christian Democrats and its Bavarian sister party logged their worst result since 1949, while the anti-immigrant Alternative for Germany (AfD) party won around 13% of the vote, becoming the first far-right party to win seats in Parliament in more than 50 years.
"As predicted, Angela Merkel won a fourth term in office, but not without handing over a chunk of her vote to the Far Right AFD," said Lee Wild, head of equity strategy at Interactive Investor, in a note.
"The [Social Democratic Party] did even worse, and the Chancellor will be forced into bed with the Greens and the Free Democrats (FDP) in a Jamaica coalition. Any extended period of uncertainty poses a problem, certainly if the FDP's dislike of Macron threatens Germany's relationship with France. Markets won't like that," he said.
Analysts have said it could take months for a new governing coalition in Germany to be formed, with issues such as EU integration and immigration the points of contention. One concern is that the outcome will now make it more difficult to push forward on financial integration of the eurozone.
The euro was buying $1.1910, down from $1.1948 late Friday in New York. The shared currency dropped against the pound, buying 0.8797 pence, down from 0.8853 pence on Friday.
The yield on Germany's 10-year bund fell 2 basis point to 0.431%, according to Tradeweb. Yields fall when prices rise.
"It's possible that Angela Merkel becomes distracted from international politics during the inevitable horse trading following a disappointing election for her. Any sense that this weakens the EU's position could play into the hands of U.K. Brexit negotiators, as a fourth round of talks with European officials begins in Brussels today," said Wild.
Stock movers: Unilever PLC (ULVR.LN) turned higher by 0.3%. The consumer products heavyweight reached a deal to buy skincare business Carver Korea for 2.27 billion euros (http://www.marketwatch.com/story/unilever-agrees-to-buy-carver-korea-for-227-bln-2017-09-25) ($2.7 billion), a move Unilever said will strengthen its position in northern Asia.
Engineering and power grid company ABB Ltd. (ABBN.EB) was up 0.4% after General Electric Co. (GE) agreed to sell its industrial-solutions business to ABB. ABB will pay $2.6 billion for the GE unit (http://www.marketwatch.com/story/ge-to-sell-industrial-unit-to-abb-for-26-bln-2017-09-25), which makes electrical equipment for utilities.
Individual indexes: France's CAC 40 was flat at 5,281.65, and the U.K.'s FTSE 100 fell 0.2% to 7,295.01.
Economic data: German business confidence fell unexpectedly in September, new figures released by Ifo on Monday show. The German think tank's business climate index dropped to 115.2 points (http://www.marketwatch.com/story/german-business-sentiment-falls-in-september-ifo-2017-09-25) from 115.9 points in August, compared with expectations for 115.9.
(END) Dow Jones Newswires
September 25, 2017 04:47 ET (08:47 GMT)