5th Mar 2025 16:53
(Alliance News) - Hopes that car makers may escape US tariffs and a game changing fiscal change saw the DAX rocket on Wednesday, but progress in London was muted.
The FTSE 100 index ended down 3.16 points at 8,755.84. The FTSE 250 climbed 177.23 points, 0.9%, at 20,127.73, and the AIM All-Share gained 3.61 points, 0.5%, at 690.48.
The Cboe UK 100 ended up 0.3% at 877.63, the Cboe UK 250 rose 1.4% at 17,538.33, and the Cboe Small Companies ended flat at 15,526.79.
In Paris, the CAC 40 leapt 1.9%, while the DAX 40 in Frankfurt jumped 3.4%.
Planned changes to fiscal rules in Germany were hailed as a "game changer" which could help give Europe its biggest boost in decades.
Late Tuesday, incoming German chancellor Friedrich Merz said he had agreed a deal with his likely coalition partner to inject hundreds of billions in extra funding into Germany's military and infrastructure, designed to revive and re-arm Europe's largest economy.
Merz said his Christian Democratic Union party and the rival Social Democrats will jointly present a bill in Parliament next week to relax the country's strict borrowing rules.
A provision would exempt defence spending above 1% of GDP from the 'debt brake' that caps government borrowing, allowing Germany to raise an unlimited amount of debt to fund its armed forces and to provide military assistance to Ukraine.
The 'debt brake' was introduced in 2009 in the wake of the global financial crisis to show Germany was committed to balancing the books after the banking crash.
The future coalition partners will introduce another constitutional amendment to set up a EUR500 billion fund for infrastructure, which would run over 10 years. They are also planning to loosen debt rules for states.
Bank of America called the "paradigm shift" in German fiscal policy a "game changer" although it cautioned while the market will "react immediately, the economy may take longer".
"This is for the long haul: short-term growth prospects [are] probably unchanged, but the medium term looks much better now," BofA added.
Stephen Innes at SPI Asset Management said that, with multiple European governments ramping up defence spending and loosening fiscal constraints, the stage is set for a major rotation into European equities.
"If this momentum holds, Europe may no longer just be the underdog catching a bid - it could be leading the next global capital shift," he suggested.
"Germany's fiscal pivot is a major inflection point, and if other EU nations follow suit, the euro and European equities could emerge as the next big macro trade. Markets remain on edge, but one thing is clear: global positioning is shifting fast."
Innes pointed to the irony that 'America First' might just be giving Europe its biggest boost in decades.
The mood was further lifted by comments from US commerce secretary Howard Lutnick who indicated that some sectors may be "left out" of tariffs imposed on Canada and Mexico, sending shares in carmakers higher.
Volkswagen and Mercedes-Benz rose 3.4% and 3.3% respectively in Frankfurt while Renault was up 2.8% in Paris.
Lutnick said US President Donald Trump was considering which sectors could potentially be given some relief from the 25% tariffs, which took effect on Tuesday. An announcement was due later Wednesday.
While some sectors would still face a 25% tariff, Lutnick said, others could see some relief. "It could be autos, it could be others as well," he said.
Markets on Wall Street opened lower. At the time of the London close, the Dow Jones Industrial Average was down 0.1%, while the S&P 500 and the Nasdaq Composite were down 0.4%.
US private sector growth was stronger than expected last month, according to a pair of purchasing managers' index readings.
According to S&P Global, the US services PMI business activity index faded to 51.0 points in February, easing from 52.9 in January, but topping the flash reading of 49.7.
It was the softest expansion since November 2023, however, S&P Global said.
The wider composite PMI, which also factors manufacturing data from earlier in the week, faded to 51.6 in February, from 52.7 in January.
The reading topped the flash estimate of 50.4, however.
The Institute for Supply Management's PMI measure also suggested service sector growth was stronger than expected.
The ISM services PMI rose to 53.5 points in February, from 52.8 in January. The figure topped the FXStreet cited consensus of 52.6.
Numbers from payroll processor ADP showed US private hiring slowed markedly to 77,000 last month, from 186,000 in January. January's number was upwardly revised from 183,000.
The latest number was well shy of the FXStreet cited consensus of 140,000. It was also the weakest jobs growth since July.
The data comes ahead of Friday's nonfarm payroll figures.
Trading Economics-cited market consensus points to nonfarm payroll growth of 160,000 in January, an unchanged unemployment rate of 4.0%, and growth in average hourly earnings of 0.3% on-month.
The prospect of higher spending in Europe continued to support sterling and the euro, and keep the dollar pegged down.
The pound advanced to USD1.2863 late on Wednesday in London, compared to USD1.2712 at the equities close on Tuesday. The euro stood higher at USD1.0764, against USD1.0525. Against the yen, the dollar was trading flat at JPY148.58 compared to JPY148.56.
On the FTSE 100, Chile-based copper miner Antofagasta jumped 6.5% as the price of copper rose 5.6%.
Gold also rose to USD2,926.93 an ounce against USD2,908.04, supporting Fresnillo, up 5.8%, and Endeavour Mining, up 3.7%.
Games Workshop climbed 3.2% after it reported a strong start to trading in 2025.
The Nottingham, England-based company manufactures miniature wargames and is best known for its Warhammer products.
Games Workshop said that trading in January and February has been ahead of expectations, with strong trading across both the core business and licensing.
As a result, group pretax profit for the 12 months ending June 1 is will be ahead of expectations, the company said.
But Haleon fell 2.6% as HSBC downgraded to 'hold' from 'buy'.
HSBC said Haleon is a "good story" but a further re-rating will be "tough", pointing out Haleon's shares have risen by almost 25% over the past year.
"While we continue to like Haleon's fundamentals and think its portfolio is capable of delivering superior growth, we believe this is mostly reflected in its absolute multiple and [around] 25% premium to European Staples."
Brent oil was quoted lower at USD68.38 a barrel on Wednesday from USD70.29 late Tuesday, extending falls following the surprise decision by Opec+ to increase production.
Thursday's economic calendar sees the ECB interest rate decision at 1315 GMT, eurozone retail sales figures at 1000 GMT and US initial weekly jobless claims data at 1330 GMT.
Thursday's local corporate calendar has full-year results from consumer goods group, Reckitt Benckiser, pest control specialist Rentokil Initial, bookmaker Entain and gold miner Endeavour Mining.
By Jeremy Cutler, Alliance News reporter
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