2-7-18 4:33 AM EST | Email Article

By Sara Sjolin, MarketWatch

Merkel clinches coalition deal with the Social Democrats

European stocks posted firm gains on Wednesday, breaking a seven-session losing run. The move tracked gains on Wall Street Tuesday, as U.S. equity markets managed to bounce higher in a volatile session, following the biggest global selloff in years.

Meanwhile, in Germany, media reports said German Chancellor Angela Merkel's party and its former center-left partner have agreed on a formal deal to set up a governing coalition.

What are markets doing?

The Stoxx Europe 600 index rose 0.5% to 374.65, rebounding from its lowest close since late August last year, hit on Tuesday (http://www.marketwatch.com/story/european-stocks-open-with-sharp-losses-after-wall-street-carnage-2018-02-06). It also posted its biggest one-day percentage loss since June 2016 on Tuesday, as part of a global market rout that started in the U.S. on Monday afternoon.

Germany's DAX 30 index put on 0.4% to reach 12,441.58, while France's CAC 40 gained 0.4% to 5,184.71. The U.K.'s FTSE 100 index added 0.7% to 7,187.95.

Read:50-year Wall Street veteran says this sure feels like a stock-market bottom (http://www.marketwatch.com/story/50-year-wall-street-veteran-this-sure-feels-like-a-stock-market-bottom-2018-02-06)

And see:Here's how U.S. stocks typically perform in the aftermath of a major rout (http://www.marketwatch.com/story/heres-how-the-stock-market-typically-performs-in-the-aftermath-of-a-major-rout-2018-02-06)

The euro fell to $1.2369 from $1.2379 late Tuesday in New York. The traded at $1.3942, compared with $1.3950.

What is driving the market?

After Tuesday's steep losses, traders picked up beaten-down European stocks and keyed off the solid gains logged in the U.S. late in the session (http://www.marketwatch.com/story/dow-futures-swing-wildly-in-battle-to-recover-from-historic-selloff-2018-02-06). The Dow Jones Industrial Average on Tuesday swung more than 1,000 points intraday, as investors adjusted to heightened volatility after years of calm markets.

The Dow on Monday suffered its biggest one-day point drop ever, as rising bond yields and hints that U.S. inflation is rising faster than expected fueled concerns that the Federal Reserve could raise interest rates more quickly than currently anticipated.

Read:Here are 3 key takeaways from the stock-market selloff (http://www.marketwatch.com/story/here-are-3-key-takeaways-from-the-stock-market-selloff-2018-02-06)

In Germany, investors on Wednesday were keeping an eye on coalition talks between Merkel's conservative CDU party and the center-left SPD. The two parties negotiated all though the night and by Wednesday morning had reportedly clinched a deal on a grand coalition (https://uk.reuters.com/article/uk-germany-politics/merkels-conservatives-spd-clinch-coalition-agreement-sources-idUKKBN1FR0HG) to form a government.

If confirmed, the agreement would end four months of political wrangling in Europe's largest economy, which has been without a new government after September's general election failed to produce a majority for one party.

What are strategists saying?

"While the global economy continues to point to a positive economic outlook, the volatility around the moves of the past few days is likely to introduce an element of uncertainty and caution over the next few days, at least until the price action starts to settle down and become a bit more stable," said Michael Hewson, chief market analyst at CMC Markets UK, in a note.

"For markets in Europe, we've seen the DAX and CAC40 both close below their long term 200-day moving average in the past few days, for the first time since the third quarter of 2016, raising the prospect that we could well be in for a period of consolidation in the coming days," he added.

Which stocks are in focus?

Shares of Sanofi SA (SAN.FR) (SAN.FR) lost 1.6% after the French drug giant said profit in the fourth quarter dropped to EUR129 million (http://www.marketwatch.com/story/sanofi-net-profit-slide-on-sales-drop-charge-2018-02-07) ($160 million) from EUR790 million the same period last year.

Novozymes AS (NZYM-B.KO) slumped 5% after the Danish enzymes maker reported profit below analyst expectations.

Carlsberg AS fell 3% after the brewer reported a drop in 2017 profit, hit by an impairment charge of its Baltika brand in Russia and fall in sales.

Tullow Oil PLC (TLW.LN) climbed 2.5% after the oil-and-gas explorer said its loss narrowed by 68% in 2017 (http://www.marketwatch.com/story/tullow-oil-net-loss-narrows-68-2018-02-07).

Statoil ASA (STL.OS) gained 2.5% after the Norwegian oil company raised its dividend and posted profit ahead of forecasts (http://www.marketwatch.com/story/statoil-lifts-dividend-as-profit-beats-forecasts-2018-02-07).

What is on the economic data docket?

Germany's industrial output slipped (http://www.marketwatch.com/story/german-industrial-output-slips-outlook-promising-2018-02-07) at the end of 2017, but the country's economics ministry said manufacturers' order books signal vigorous production in the coming months.

Industrial production in December fell 0.6% from November, led by construction output, the ministry said Wednesday. That compares with forecasts for a 0.5% decline.


(END) Dow Jones Newswires

February 07, 2018 04:33 ET (09:33 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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