European stocks swung between small gains and losses on Friday afternoon as traders weighed up a brewing political crisis in Spain against better-than-expected sentiment data from Germany and measured comments from North Korea that calmed nerves about geopolitical tensions.
What are markets doing?
The Stoxx Europe 600 Index SXXP, +0.07% fell 0.2% to 389.97, after trading as high as 392.91 earlier in the session. For the week, the index was on track for a 1.2% loss. A decline this week would break the benchmark’s eight-week winning run, which marked its longest win streak since June 2014.
Spanish stocks were under pressure, with the IBEX 35 index IBEX, -1.96% down 2.5% at 9,748.10 on reports the opposition Socialist party called for a vote of no confidence on Prime Minister Mariano Rajoy.
Italy’s FTSE MIB index I945, -1.49% lost 2.1% to 22,273.10 and headed for a 5% loss for the week. The index has been on a roller coaster rise this week after the populist coalition of the 5 Star Movement and League on Monday presented their prime minister candidate to President Sergio Mattarella.
The U.K.’s FTSE 100 index UKX, +0.15% dropped 0.1% to 7,706.74. U.K. markets are closed on Monday for a local holiday.
Germany’s DAX 30 index DAX, +0.48% rose 0.1% to 12,863.44, while France’s CAC 40 PX1, -0.16% dropped 0.4% to 5,527.10.
The euro EURUSD, -0.5119% traded at $1.1649, compared with $1.1722 late Thursday.
What is driving markets?
Stocks headed lower in the afternoon as attention turned to Spain where the country’s main opposition party called for a vote of no confidence on Prime Minister Rajoy over a corruption case that ended in convictions for a former party treasurer and other senior members of the party.
The credibility of Rajoy, who already has a shaky hold on power, was questioned by the judge who handed down the ruling on Thursday, according to Reuters. It isn’t clear if the opposition socialists can get enough votes to loosen his grip on power.
The yield on 10-year Spanish government bonds TMBMKES-10Y, +3.35% jumped 11 basis points to 1.499%, according to Tradeweb.
European markets had opened in positive territory, rebounding after Thursday’s sharp losses that came in the wake of Trump’s decision to cancel a historic meeting with North Korea. Traders found some reassurance on Friday in a measured response from Pyongyang where a senior official said its leader Kim Jong Un is still willing to meet.
Closer to home, traders were also encouraged by data showing the recent slide in German business sentiment coming to a halt in May. The Ifo business climate index came in at 102.2 in May, unchanged from April and above economists’ forecasts of 101.9 points.
Meanwhile in Italy…
Traders were watching who will get the top jobs in Italy’s new coalition after President Mattarella late Wednesday gave little known law professor Giuseppe Conte a formal mandate to form a government. Conte is expected to present his cabinet picks on Friday and then Mattarella and both houses of parliament need to approve his choices.
If that happens, Italy will become the largest country in Europe to be run by an antiestablishment government, which has already put itself on collision course with Brussels. The two parties have vowed to challenge the EU’s budget rules and slash taxes while increasing fiscal spending.
The yield on 10-year paper TMBMKIT-10Y, +6.37% jumped 12 basis points to 2.509% on Friday.
What are strategists saying?
“How times can change. After weeks and months of disappointing data, not only from Germany but the entire eurozone, an unchanged Ifo index is already good news. After five consecutive drops, Germany’s most prominent leading indicator, the Ifo index, remained unchanged in May, after an upward revision of the April data, keeping the hopes of an economic rebound alive,” said Carsten Brzeski, chief economist for Germany at ING, in a note.
Stock movers
Share of Centamin PLC CEY, -18.20% posted the biggest slide in Europe, falling 16% after the miner cut its 2018 production guidance at the Sukari gold mine in Egypt by 11%-13%.
Italian and Spanish banks were also lower. Shares of Banco BPM SpA BAMI, -6.19% and Intesa Sanpaolo SpA ISP, -3.65% fell 7.5% and 4.1%, respectively, in Milan, while CaixaBank SA CABK, -3.89% and Banco Santander SA SAN, -3.20% SAN, -3.18% fell 4.4% and 3.2%, respectively, in Madrid.
Energy companies declined as oil prices CLN8, -3.90% dropped more than 2% after reports OPEC and Russia are discussing plans to boost production. The Stoxx Europe 600 Oil & Gas SXEP, -1.81% dropped 1.7%.
Royal Mail PLC RMG, -2.90% dropped 3% after Berenberg cut the delivery company to sell from hold, according to Dow Jones Newswires. Berenberg said Royal Mail faces little profit growth in coming years, as its customers are likely to scale back on sending out marketing materials due to the EU’s new General Data Protection Regulation. The GDPR privacy rules come into effect on Friday.
Read: 5 things to know about the GDPR rules taking effect Friday—which could cost big, bad tech billions