European stock prices closed higher on Wednesday, amid upbeat global sentiment, after remarks by US Federal Reserve Chair Janet Yellen indicating a possible interest rate hike at “upcoming meetings” sparked a rally in financial stocks. The next Fed meeting is scheduled for March 14-15. Yellen’s comments boosted US and global bond yields and kept the dollar near three-week highs, benefiting European exporters.
Investors also digested a new report on Italy by the OECD. According to the Paris-based organization, Italy’s GDP is expected to grow 1% this year and in 2018 but private consumption in 2017 could be affected by the uncertainty surrounding the Italian banking system and Brexit. It added that Italian GDP growth also remains weak because of a lack of investments and a difficult international environment.
At the end of the session, the London FTSE 100 closed up 0.47% at 7,302.40 points, the Frankfurt DAX rose 0.19% to 11,793.93 points and the Paris CAC 40 gained 0.59% at 4,924.86 points. In Milan the FTSE MIB declined 0.69% to 19,056.16 points and in Madrid the IBEX 35 rose 0.84% to 9,590.50 points.
Shares of Italian-American auto maker Fiat Chrysler Automobiles (FCA) ended up almost unchanged after being higher for most of the day among expectations of fresh M&A activity in the sector after the announcement by French car maker PSA of a possible acquisition of German peer Opel from General Motors. Analysts also noted that the share price is still undervalued compared with those of its competitors.
According to brokerage Equita, should the PSA-Opel deal go through it would be a positive catalyst and would ignite speculative appeal as it would kick off a wave of consolidation that had frozen up. Also, they add, “GM would get rid of a loss-making business, removing the problem of duplication in case of merger with FCA.” The analysts see a modest impact on the European market of there being one less competitor.
Analysts at Banca Akros noted that even though “the move by PSA on Opel does not necessarily mean that GM is ready to buy FCA, it could create better conditions for a tie-up: we feel that a GM-FCA combination would be easier without Opel/Vauxhall since the new grew would have significant overlaps only in the NAFTA and Latin American area, while in EMEA and APAC there would be no overlaps. FCA-GM would have a 31% market share in the US and 36% in Brazil,” they noted.
In the financial sector, Italian bank Intesa Sanpaolo rose 0.83% while insurer Generali lost 1.87%. Intesa Sanpaolo chairman Gian Maria Gros-Pietro said yesterday that the bank has not set a deadline regarding a possibly tie-up with the insurer Generali. “There is no deadline” and no news regarding a possible deal, Gros-Pietro told reporters. He added that Intesa has not created any uncertainty regarding the future of Generali because no offer has been put on the table.
Finally the differential between yields on 10-year Italian government bonds and their German counterparts stood at 1.86 percentage points at the end of trading, up 1 point from the close on Tuesday.
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