Europe erases early losses as Germany’s Dax rebounds from seven-week low

On Monday the euro erased early losses and stocks gained as investors judged the failure of German Chancellor Angela Merkel’s coalition talks unlikely to harm the outlook for the region’s economy. Sterling strengthened after reports the U.K. may make concessions to smooth Brexit negotiations.

The Stoxx Europe 600 Index rose as Germany’s DAX rebounded from a seven-week low. Carmakers led the advance after Volkswagen AG raised sales forecasts. Earlier, Chinese equities reversed losses as markets took a closer look at plans to curb shadow banking. In the U.S., the gap between twoand 10-year Treasury yields again hit the tightest level in a decade, adding to concern about the pace of future economic growth. The dollar was steady, while West Texas oil held above $56 a barrel.

Investors returned to their desks this week with a fresh reminder of political risk in Europe. A month of exploratory coalition talks in Germany ended in a dramatic collapse on a dispute over migration policy. The upshot is that Europe’s dominant country remains hamstrung on the global stage, potentially affecting everything from policy to- ward the European Union, Turkey and Russia to government spending.

The pause in the rally in risk assets globally comes as investors try to gauge whether there are sufficient drivers to continue the march to historic highs. Strong earnings and solid global growth are balanced against lofty valuations in some markets, as well as the negative signal from the U.S. yield curve, where longer-dated Treasuries are yielding less of a premium over shorter ones.

The Stoxx Europe 600 Index jumped 0.3 percent as of 10:52 a.m. London time, the highest in a week. The U.K.’s FTSE 100 Index was unchanged. Germany’s DAX Index jumped 0.2 percent.

Japan’s Nikkei 225 Stock Average decreased 0.6 percent. The MSCI Asia Pacific Index declined 0.1 percent. The MSCI Emerging Market Index climbed 0.2 percent to the highest in more than six years. Futures on the S&P 500 Index fell 0.1 percent to 2,574.25.

West Texas Intermediate crude fell 0.2 percent to $56.41 a barrel. Gold dipped 0.1 percent to $1,291.74 an ounce. Copper declined 0.2 percent to $3.08 a pound.