Choppy trading as Spanish stocks fall on Monti warning whilst German Ifo beats expectations

European stock markets were mixed on Monday in choppy trade after investors bought tentatively into UK and German stocks following better than expected German Ifo data, whilst the fact that the People’s Party failed to secure an outright majority in a Spanish regional election is weighing on Spanish stocks.

By mid morning trade the FTSE 100 had gained 17 points, whilst the Spanish IBEX fell 1.6% and the DAX switched between small gains and losses.

The German Ifo reading was a positive surprise and did help to encourage some bargain hunting in UK and German stocks after weak trading last week, however it’s the Spanish regional election results that are weighing on market sentiment today. A warning from Italian Prime Minister, Mario Monti, that Spain’s struggle to control its finances could reignite the European debt crisis is politically timed; coming ahead of the Spanish budget on 30 March but also coinciding with the People’s Party failure to secure an outright majority in Andalusian elections yesterday.

The failure of Mariano Rajoy, the Spanish Prime Minister, to secure a majority in the most populated autonomous region of Spain escalates concerns that Rajoy may not have the political power to force through the tough fiscal austerity needed to help reign in the country’s debt pile within the forthcoming budget. The fact that this view was reinforced by Mario Monti over the weekend merely escalates those concerns and as such, we have seen clients reduce positions in Spanish stocks, and financials in particular, with the Spanish IBEX index losing over 1% as a result.

UK and German stocks did receive a boost from better than expected German Ifo data, with the confidence measure coming in at 109.8 – a tad higher than expected – against forecasts of 109.6, whilst current conditions fell less sharply than expected to 117.4 and expectations rose to 102.7. The readings were well received by the market and boost hopes that German business confidence is resilient, despite a raft of weak global economic data, in the strongest economy of the eurozone.

From a sector perspective in London trade, it is the miners that continue to be a key drag on the FTSE 100 Index, with the sector losing another 0.7%. On the positive front, much of the mining weakness has however been countered by strength in oil stocks, whilst travel and leisure firms and tobacco stocks have also enjoyed a strong mornings trade.

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