European shares rise with Germany's DAX hitting record

Republican says US debt-ceiling talks paused

By Reuters

Published: Fri 19 May 2023, 10:34 PM

European stocks rose on Friday and Germany’s blue-chip index hit a record high as hopes of progress in US debt ceiling talks boosted risk sentiment, although negotiations appeared to have reached an impasses moments after markets closed.

The DAX, which houses Germany’s top 40 companies, closed 0.7 per cent higher, after rising as far as 16,331.94 earlier in the day.

The pan-European STOXX 600 index also rose 0.7 per cent to a more than one-year high, with financial stocks leading gains.

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Talks on Capitol Hill on raising the debt ceiling had appeared to be moving forward, with Democrat negotiators saying they made “steady progress” toward a deal that would avoid a default.

However, the lead Republican negotiator later said talks had paused, with the White House saying a deal remains possible.

“The market seemed to be going into this weekend thinking that the talks were going to move toward...an agreement, said Quincy Krosby, chief global strategist at LPL Financial.

“What you’re seeing now is the Republicans saying, ‘no, this is not acceptable’, and they just staged a walkout.”

Separately, Federal Reserve Chairman Jerome Powell said the path for monetary policy has grown less certain after just over a year’s worth of aggressive rate rises aimed at countering inflation, while European Central Bank President Christine Lagarde stressed the need for the ECB to keep rates high.

Big European companies have delivered significantly stronger than expected first-quarter results, defying the economic backdrop of surging inflation and rising interest rates.

Nonetheless, worries about that global economy, falling customer demand and margin pressures persist.

Shares of semiconductor companies such as AMS and Nordic Semiconductor rallied more than 5 per cent as Swiss and Norwegian markets reopened after Thursday’s holiday.

Troubled Swedish real estate group SBB fell 5.7 per cent after Goldman Sachs cut its price target by 50 per cent to 5 Swedish crowns. The stock has shed more than half its value this month on concerns about the group’s debt.

European sports retailers JD Sports Fashion, Adidas and Puma fell between 3.3 per cent and 7.8 per cent after Foot Locker Inc trimmed its annual sales and profit forecast.

Data showed German producer prices rose slightly more than expected to 4.1 per cent in April, on a year-on-year basis.

Greece is headed for what is likely to be an inconclusive parliamentary election on Sunday, while ratings agency Moody’s will review Italy’s credit rating, with a chance of a downgrade to “junk”, although analysts say this is unlikely.