European Shares Head South as Gold Breaks Out

European stock markets are heading south, following losses on most Asian markets. U.S. stock futures are also down. Disappointing earnings reports from the likes of Vivendi SA and BASF SE are adding to pressure. The Stoxx Europe 600 is still poised for another weekly gain, but the really has been running out of steam in recent days and investors still hesitate to push DAX and FTSE 100 lastingly above levels of 12000 and 7300 respectively. The FTSE 100 is outperforming slightly today, as Sterling dipped. Gold prices are breaking out as investors look for a safe haven. The weakness in European stock markets followed a largely disappointing session in Asia. Investors turned cautious in China amid concerns that markets are oversold and the ASX ended the weak lower as metal prices dropped. Metal and machinery groups also dragged down Japanese markets, and the Topix closed with a 0.4% loss.

Political Concerns Drive Yields

Political concerns continue to plague Europe. Support for Macron continues to rise after Bayrou backing. The latest daily OpinionWay poll shows that Le Pen’s lead over Macron in the first round of the election is narrowing, with Len Pen unchanged at 26%, followed by Macron who could see his share increasing to 23%, ahead of Conservative candidate Fillon, who remained unchanged at 21%. Both Macron and Fillon would beat Le Pen in the second round by a relatively wide margin and Macron could lift his chances for the second round to 61% vs 39% for Le Pen, from 60%-40%.

Fears that Bayrou, the president of the Democratic Movement, would stand again this time around and thus split the centrist vote, had seen French yields rising sharply at the start of the week, but in the event Bayrou decided to refrain from having another stab at office and back Macron instead. The independent candidate is increasingly looking like the man to beat and even if Fillon still manages to overtake him, Le Pen continues to looks set to lose out in the second round by a wide margin.

Italian economic sentiment improves in February. After the strong PMI and Ifo readings, Italian manufacturing sentiment also came in higher than expected and jumped to 106.3 from 105.0 in the previous month. The overall economic sentiment indicator improved to 104.0 from 103.3, although like elsewhere in the Eurozone consumer sentiment is coming off as inflation moves higher and political concerns dominate the headlines.

Buba’s Dombret a member of the Bundesbank’s executive board, repeated his warning that EU equivalence decisions may not offer a sound footing for banks. According to Dombret, the three major drawbacks are that they only cover the wholesale business of banks, that banks need time to build up a new entity elsewhere and that a decision on equivalence would have to be taken quite soon, to influence location decisions, and lastly that equivalence decisions are reversible.