Europe Markets: European stocks slump as Merkel comes under pressure in G…

Europe Markets: European stocks slump as Merkel comes under pressure in G…

European stocks slump as Merkel comes under pressure in Germany

European stock markets headed mostly lower on Monday, as Angela Merkel’s tenure as German Chancellor came under threat and the trade conflict between the U.S. and China escalated.

What are markets doing?

The Stoxx Europe 600 index SXXP, -0.66% dropped 0.4% to 387.58, building on a 1% loss from Friday.

Germany’s DAX 30 index DAX, -1.05% fell 0.6% to 12,936.24, while France’s CAC 40 PX1, -0.95% gave up 0.5% to 5,476.42.

The U.K.’s FTSE 100 UKX, -0.12% managed to erase an opening loss and swing back in positive territory, trading 0.1% higher at 7,639.35. The turnaround came as oil prices trimmed losses and sent U.K.-listed oil majors higher after reports the Organization of the Petroleum Exporting Countries will raise output less than expected at a meeting in Vienna later this week.

The euro EURUSD, -0.0345% fell to $1.1588 from $1.1609 late Friday in New York.

What is driving the market?

Trade tensions remained in the spotlight after China announced plans for retaliatory tariffs on U.S. goods worth $34 billion, including soybeans, whiskey and electric cars. Beijing’s move comes after U.S. President Trump last week approved a first round of levies on about $50 billion in Chinese products and reportedly was drawing up a list for a second wave of tariffs against China.

Meanwhile, back in Europe, German Chancellor Angela Merkel’s fragile coalition was under pressure over migrant issues, prompting increasing concerns that the government could falter. Merkel’s Bavarian allies, the Christian Social Union, will reportedly decide on Monday whether to defy the chancellor on her immigration policies, which the CSU believes are too soft.

What are analysts saying?

“Angela Merkel’s coalition is coming under increasing strain over the migrant issue. Ms. Merkel is insisting that Germany abide by a pan-European solution while her partners are pressing for a German only policy response,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management.

“The friction is so tense that markets are becoming genuinely concerned that her government could fall which would have hugely negative ramifications for [the] euro as Germany is the de-facto anchor for the currency. The pair looks vulnerable to test 1.1500, but could fall much further if the crisis in Germany spins out of control,” he added.

Stock movers

Shares of Indivior PLC INDV, +4.05% rallied 5.3% after the U.K. pharma company said it has been successful in temporarily blocking the launch of a generic alternative to its Suboxone opioid disorder medication through the courts.

Engie SA ENGI, -3.27% dropped 2.4% after saying it expects an adjustment for three nuclear units to cause a 250 million-euro ($290.1 million) hit in its 2018 earnings.

Virgin Money Holdings PLC VM., -2.03% lost 2.1% after the British lender accepted a £1.7 billion all-share takeover offer from fellow bank CYBG PLC CYBG, -0.91% , the parent of British lenders Clydesdale and Yorkshire Bank. Shares of CYBG were down 1%.

Sara Sjolin

Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.

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