European shares rose on Monday as easing trade war worries lifted the dollar, supporting exporters, while Italian stocks came under renewed pressure as markets awaited developments in the creation of a new government.
The pan-European STOXX 600 index closed up 0.3%, holding at its highest level since the beginning of February, while the FTSE 100 hit a new record high, up 1% as strength in the dollar supported the internationally-exposed index.
“The feel-good factor from the trade war truce bolstered risk sentiment and a weaker pound delivered the usual shot of adrenalin for the blue chips,” said Neil Wilson, chief market analyst at Markets.com.
The dollar hit a fresh five-month high on relief that US Treasury Secretary Steven Mnuchin declared the US-China trade war “on hold” following their agreement to suspend the tariff threats.
While activity was reduced by the closure of some markets, including Germany, for Whit Monday, Italian stocks were notable underperformers.
Italy’s anti-establishment 5-Star Movement and League parties are seeking presidential approval for a prime minister to lead a government whose plans to raise spending have upset financial markets.
Italy’s FTSE MIB benchmark index saw losses widen throughout the session and ended down 1.5% as any bargain-hunting was outweighed by a number of stocks going ex-dividend, including heavyweight bank Intesa Sanpaolo .
“I would wait before considering the current phase of widening (debt) spreads and stock losses as an interesting buying opportunity,” said JCI Capital portfolio manager Alessandro Balsotti.
Italian equities suffered their biggest one-week loss since early March on Friday on worries the new government could relax fiscal discipline.
Elsewhere, it was a bumpy ride for Ryanair shares which fell around 3% at the open before springing back to end more than 5% higher.
The Irish airline reported a record annual profit as it brushed off a rostering mess-up that forced it to cancel flights and sparked a dispute with pilots, but warned that profits would fall back in the coming year due to higher costs and no fare growth.
“Despite all this pessimism (zero H2 fare visibility), investors are taking the news in their stride. Perhaps because none of this is actually news: oil prices continue to rise and staff talks are ongoing,” said Artjom Hatsaturjants, research analyst at Accendo Markets.