Friday 27 April 2018

Cautious optimism for eurozone economic improvement

Economists now believe that the eurozone is back in business
Economists now believe that the eurozone is back in business

David Brett

Signs of economic revival in the eurozone and bullish earnings from companies including technology firm Arm and low-cost airline easyJet boosted European shares by midday today.

By lunchtime, the FTSEurofirst 300 was up 10.88 points, 0.9pc, to 1,218.04, while the eurozone blue chip index (STOXX) rose 1.1pc to 2,753.13.

The short-term technical view for the STOXX remained bullish having found support on the 50 percent retracement level of 2,662 then the 38.2pc level of 2,700, but it would need to break higher and close above 2,735 to target the all-important high of 2,822.

The main driver of gains in Europe today was data showing factories in the eurozone increased output for the first time in well over a year, traders said.

But John Clarke, chief investment officer at GHC Capital Markets, said investors should not be getting too far ahead of themselves.

"As a short-term indicator the eurozone composite data has a tendency to under-predict the downside, which is why I concentrate on monetary trends," he said.

"The problem is as a monetarist you have seen no real pick up in bank lending ... and that makes me worried about the eurozone (growth)," he said.

Clarke said economic growth will drive a continued re-rating of equities, but he expects this to occur more in the United States and in part in the UK than the eurozone.

Earnings momentum remains in downgrade territory for all major European sectors except for airlines, according to Datastream.

Low-cost airline easyJet was a runaway success, its shares rising 7.7pc and lifting the broader travel and leisure sector by 1.4pc after issuing stronger-than-expected full-year profit guidance.

ARM, which designs chips for use in mobile computers and telephones including Apple's iPhone, rose 5.1pc and helped lift the technology sector 1pc after the UK-based firm beat expectations for its second quarter with a 30pc rise in adjusted pretax profit.

British sweetener maker Tate & Lyle and Kingfisher , Europe's biggest home improvements retailer, climbed as much as 3pc after their respective updates.

US investment bank Goldman Sachs was more bullish on European equities, raising its rating over a 12-month timeframe to "overweight" from "neutral", arguing that the region's stock markets should be boosted by accommodative monetary policies and signs of an economic recovery.


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