Saturday 22 July 2017

Shares surge, and oil sees gain despite Opec boosting output

Market watch: Weak euro pushes shares to highest levels since 2000

OIL GLUT FEARS: Iran’s supreme leader Ayatollah Khamenei
OIL GLUT FEARS: Iran’s supreme leader Ayatollah Khamenei Newsdesk Newsdesk

European shares powered ahead to their highest level since 2000 on Friday, helped by further declines in an already weak euro that is seen supporting an economic recovery and boosting corporate profits.

On Friday, the FTSEurofirst 300 index of top European shares was up 0.5pc at 1,638.69 points, surpassing its 2007 peak and taking its gains so far this year to 20pc.

Germany's DAX index, which includes dividends unlike most other benchmarks, was up 1.5pc, hitting a record high, while France's CAC 40 was up 0.2pc to its highest level since 2008. Britain's FTSE 100 index rose 0.6pc, hovering below a record high hit in March.

Shares in France's Carrefour, the world's second-biggest retailer, rose 1.5pc after it reported better-than-expected quarterly sales, driven by growth in Latin America and an improvement at its domestic hypermarkets.

The euro fell to 1.0607 against the dollar on Friday, having slipped more than 3pc last week alone.

European stocks have risen sharply this year as global investors increased their exposure to the region on expectations the euro's slide would give companies a major lift, as roughly 50pc of euro zone firms' earnings come from outside the region.

Strategists have said a drop of 10pc in the euro versus a basket of currencies translates into a 6 to 8pc rise in European companies' profits. With the euro down about 16pc over the past year, profits are poised to get a 10-13pc boost.

This contrasts with a recent deterioration in US earnings forecasts, driven in part by the stronger dollar. First-quarter S&P 500 earnings are projected to have declined by 2.8pc from a year ago, which would make the quarter the worst for results since the third of 2009.

"The focus is back on the forex market. It's mostly the dollar rising, and while it's very good news for European earnings, the negative impact on US results could be quite significant," said Naeem Aslam, chief market analyst at Ava Trade in Dublin.

Oil rose towards $58 a barrel on Friday, heading for a weekly gain, supported by an easing of concerns that the interim accord over Iran's nuclear work will lead to a rapid rise in Iranian oil supplies.

Evidence this week of ample global supplies, including the biggest jump in US inventories since 2001, a glut of unsold Nigerian crude and Saudi Arabian output reaching a record high, limited the rally.

Brent crude was up $1.16 at $57.73 a barrel on Friday, remaining on track for its third weekly gain in four weeks. U.S. crude rose 50c to $51.29.

"The latest agreement with Iran does not open the floodgates for a significant return of Iranian oil on the market as many had feared," said Harry Tchilinguirian, head of commodity markets strategy and oil strategy at BNP Paribas.

World powers and Iran announced the interim accord last week. But on Thursday, Iranian supreme leader Ayatollah Ali Khamenei demanded all sanctions on Iran be lifted on the same day as any final agreement, while the US wants sanctions to be lifted gradually.

Crude was also supported by expectations of stronger demand after data this week from the United States and Germany bolstered the view that world growth is slowly perking up. Oil's rally came despite a stronger US dollar, which tends to weigh on commodities priced in the US currency.

The price of Brent has halved from $115 hit last June, a drop that deepened after OPEC in November decided not to cut output, choosing to defend market share instead. Top exporter Saudi Arabia was the driving force behind the policy shift.

"Most of the fundamental factors are still pointing to lower prices," said Eugen Weinberg, analyst at Commerzbank.

"At the moment, we have an oversupply of more than 1 million barrels per day."

While some OPEC members are urging output cuts to boost prices, Saudi Arabia has shown no sign of a rethink.

Oil Minister Ali al-Naimi told reporters on Tuesday that Riyadh had boosted its crude production to 10.3 million barrels per day, the highest rate on record.


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