Europe close: Politics take toll on French and German shares

(Sharecast News) - European shares were mostly in the red on Monday, as investors girded themselves ahead of a heavy schedule of economic reports and interest rate announcements. Against that backdrop, mixed economic news from China dragged on market sentiment, as did news that Moody's had downgraded its rating on France's sovereign debt by one notch to Aa3.

In Germany, Chancellor Olaf Scholz lost a confidence vote in the lower house of parliament, thus paving the way for early elections on 23 February, and France's new Prime Minister began meetings with opposition leaders aimed at passing next year's budget - deficit reduction included.

The pan-regional Stoxx 600 index edged down 0.12% to 515.83, whilst the German Dax gave back 0.45% to 20,313.81.

Spain's Ibex 35 however managed to dodge the red ink, adding 0.23% to 11,778.60.

French 10-year government were only a tad higher, while the euro was little changed.

France's Cac-40 shed 0.71% to 7,357.08.

"Germany is now set for elections early next year, promising to throw in a new ingredient to Europe's heady brew of political instability," said IG chief market analyst Chris Beauchamp.

"French stocks were in 'buy the rumour, sell the news' mode, falling once again after a brief rally following the collapse of the Barnier government. While his successor is now hard at work, the problems he faces remain intractable."

Meanwhile there also decisions from the Bank of Japan and Bank of England on Thursday with expectations of no change on both counts. The People's Bank of China will announce its loan prime rates decision on Friday amid calls for greater stimulus to boost the country's flagging economy.

Asian markets were broadly lower after the release of mixed economic prints from China, where industrial production grew in line with expectations in November, while retail sales missed forecasts and fixed asset investment growth disappointed.

Elsewhere on the economics front, eurozone business sentiment remained in the doldrums but there were signs of an easing of tougher conditions as the services industry returned to growth, according to preliminary survey data published on Monday.

The HCOB composite eurozone Purchasing Managers' Index rose to 49.5 in December from 48.3 in the previous month and ahead of expectations for a slight fall to 48.2. The 50 point mark separates growth from contraction.

"The end of the year is somewhat more conciliatory than was generally expected. Service sector activity returned to growth territory and is showing a noticeable, if not exuberant, pace of expansion, similar to that seen in September and October," said Hamburg Commercial Bank chief economist Cyrus de la Rubia.

"The manufacturing sector's situation is still pretty dire. Output fell at a quicker pace in December than at any other time this year, and incoming orders were down too."

In equity news, shares in French mass-media conglomerate Vivendi rallied to post a 42% gain as its newly spun-off entities Canal+, Havas and Louis Hachette Group started trading in London, Amsterdam and Paris respectively.

Shares in gambling outfit Entain fell 6% after Australia's financial crime regulator started civil penalty proceedings related to alleged breaches of the country's contraventions anti-money laundering and counter-terrorism law.