Tuesday 12 November 2019

European shares advance on investors look towards China figures

Traders work on the floor of the New York Stock Exchange
Traders work on the floor of the New York Stock Exchange

EUROPEAN shares advanced today, bouncing back after a steep sell-off in the previous session, as investors drew some strength from encouraging data out of China.

The FTSEurofirst 300 was up 0.4pc at 1,092.55 by mid-morning having sunk 1.7pc on Tuesday.

"All you're doing is getting a bit of an adjustment after yesterday's sharp move lower," Michael Hewson, senior markets analyst at CMC Markets, said.

"China data has been a little bit supportive. I don't think China is going to get the global economy out of the rut that it's in, but what it might do is prompt a little bit of caution about selling (equities)."

The HSBC Flash Manufacturing Purchasing Managers Index (PMI) for China climbed to a three-month high of 49.1 in October and new orders and output rose, pointing towards a potential return to growth.

UBS took the view that China is nearing a trough in its cycle, and data should start to improve, which could trigger a rally in the medium term in mining shares - the biggest underperformers in Europe in the past three months.

"In basic resources we see initial relative strength coming in," Michael Riesner, head of equity technical analysis at UBS, said in a note.

"On a three-to-five month basis the mining sector remains our key long call since we continue to see China as a key trigger for the SXPP (basic resources sector) completing its major basing process."

Miners were among the top sector risers on Wednesday, ahead 0.6 percent.

Data suggesting the economic downturn in the euro zone is deepening, alongside third-quarter corporate results that continue to disappoint, are seen limiting any short-term gains.

Businesses in the region endured their worst month in October since the bloc emerged from its last recession more than three years ago, surveys showed.

Meanwhile, Germany's Ifo economic research Institute said the country's business climate worsened in October.

"The (economic) numbers we have seen ... this morning have been a disappointment, but basically I think we are in a bottoming process," said Gerhard Schwarz, head of equity strategy at Baader Bank.

Schwarz bases his view that economic data out of the euro zone is close to a trough partly on annual money supply growth for the bloc which has been on an upturn since late last year.

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