European stocks closed higher yesterday, as political tensions start rising in the US, now that Trump’s economic adviser Gary Cohn publicly confirmed his resignation with immediate effect, an event that does not augur well for US – EU trade agreements. Inflation in the EU remains sluggish (February Eurostat flash CPI Y/Y given at 1.20%) while the EUR starts strengthening against major currencies. EUR/USD and GBP/EUR are valued at 1.24 and 0.89 (YTD: +3.31% and +0.47%). Adding up all these factors with further political risks with regard to uncertainty as to the future coalition between Italian parties (out of which unconventional parties will have a decent legislative power), we see no reasons for the ECB to have a hawkish stance for now. Euro Zone benchmark interest rate is at -0.40% and is expected to remain so for the whole year while ECB’s asset purchasing program of EUR 30 billion is not expected to change for now.
German DAX was leading the way on European side, closing at 12’245 (+1.09%), supported by Real Estate (+2.79%), IT (2.21%), Health Care (+1.77%), Materials (+1.32%) and Financials (+1.14%). It seems that nothing stops German economy to expand since the maintenance of current political coalition with Merkel confirmed on Monday. The Euro Zone was heading in the same direction, as investors confidence remains (Euro Stoxx 50 +0.58%), though tariff war escalation with the US is taking larger proportions.
By Vincent Mivelaz