Europe midday: German stocks pace gains, SPD vote on coalition talks in focus

German issues are pacing gains on the Continent, thanks to a pause in the single currency's recent rapid move higher following news of a potential setback for German lawmakers to craft a coalition government.

Overnight, Berlin's chapter of the SPD voted 21-8 against backing formal coalition talks between the Socialist party and Chancellor Angela Merkel's centre-right CDU/CSU.

That ballot was especially significant, coming as it did ahead of a 21 January vote by all 600 SPD delegates on whether to back talks.

Against that backdrop, as of 1337 GMT the benchmark Stoxx 600 was higher by 0.26% or 1.02 points at 398.85, alongside a rise of 1.04% or 137.08 points to 13,337.20 on the German Dax and an advance of 0.26% or 14.48 points in the Cac-40 to 5,524.29.

Meanwhile, euro/dollar was dipping 0.29% to 1.2233 after hitting an intraday low of 1.2200 and the yield on the benchmark 10-year bund was down by two basis points to 0.56%.

Yet as one analyst in the City pointed out, a Forsa poll conducted on 12 January had shown 56% of SPD and 70% of CDU/CSU voters favoured another coalition government.

On a more cautious note, strategists at Bank of America-Merrill Lynch said: "at this stage, German government formation still looks far from complete and the current discussion on Europe appears to be a tentative return to the pre-election 'status quo' rather than a big step forward. We remain cautious and timing [of Europe reforms] remains crucial."

"Equities remain positive with the German DAX and Wall St outperforming a flat UK FTSE100. The latter is in spite of GBP off its highs, as USD finds support to inspire profit taking in the commodity space, coupled with mixed inflation prints, a plethora of corporate results and an absence of risk appetite favouring defensives. The DAX benefits from EUR weakness amid fresh German coalition talk uncertainty. Wall St retains a bullish bias, set to open higher after a long weekend," chipped in Mike van Dulken at Accendo Markets.

Also sparking some interest in the US dollar, overnight Japan's finance minister, Taro Aso cautioned overnight against "big swings" in foreign exchange markets.

Coincidence or not, come Tuesday some analysts appeared to be starting wonder if at some point, or rather at which point, the European Central Bank might also take issue with the speed of gains in the euro, which had come just as rate-setters in Frankfurt were beginning to spy an exit from their programme of bond purchases.

Elsewhere on the economic front, the German Ministry of Finance reported that harmonised consumer prices in the euro area's largest economy rose by 0.8% on the month and 1.6% year-on-year in December, as expected, down from the 1.8% pace seen in November.

Similarly, ISTAT confirmed its preliminary estimate that at the end of 2017 Italian consumer prices advanced at a 0.3% clip month-on-month, despite which the annual rate of gains slipped to 1.0%.

Later in the day, the Federal Reserve bank of New York was scheduled to release its regional manufacturing gauge for the month of January.

Making headlines in the corporate space, according to the Journal, Airbus chief Tom Enders accused the Trump administration of protectionism and criticised Boeing for taking advantage of such sentiments.

Also in France, carmaker Peugeot posted a 15.4% jump in its global sales last year.

Meanwhile, Deutsche Bank and eight other lenders were accused in a lawsuit of conspiring to rig a Canadian rate benchmark.