Saturday 16 December 2017

European shares gain after positive Chinese data

Chief Executive Gavin Stark denied that a move to the London Stock Exchange was a foregone conclusion
Chief Executive Gavin Stark denied that a move to the London Stock Exchange was a foregone conclusion

EUROPEAN shares advanced today on ebbing expectations of U.S.-led military action against Syria alongside robust macroeconomic data out of China.

The FTSEurofirst 300 was up 0.7pc at 1,236.49 points in early trade, its highest level since Aug. 15.

Late on Monday, U.S. President Barack Obama said he saw a possible breakthrough in the crisis with Syria after Russia proposed that Damascus hand over its chemical weapons for destruction, which could avert planned U.S.-led military strikes.

Further brightening the mood was data showing China's industrial output growth beat forecasts in August, further evidence that its economy is picking up after a prolonged slowdown.

"I think (the news on Syria) is enough for a ... relief rally and the Chinese data looked all pretty much in line with the recent pattern ... so that's going to help sentiment on the open as well," Ian Williams, equity strategist at Peel Hunt, said.

"The landing (in China) could have been a little bit harder than would have been healthy for the Western markets but the balance of data probably since July time has suggested that that's not the case."

Miners were in demand after the data out of China, the world's top metals consumer, led by Glencore Xstrata, up 3.6pc at 332.75 pence. It has reported better-than- expected synergies from the takeover of Xstrata.

"Mergers do tend to not deliver value for shareholders but it looks like this one might do it," Joe Rundle, head of trading at ETX Capital, said.

"Although they bought at the top of the market, it does seem that, with the China data, it's a good buy now so I expect them to go higher," he said.

Rundle has short- and medium-term targets of 350p and 390p respectively on Glencore Xstrata shares.

Some strategists have, however, recently expressed a view that the strong rally seen from the mining sector could start to run out of steam in the coming months on the basis that valuations are now looking full.

The STOXX Europe Basic Resources index has jumped more than 20pc from early July lows, significantly outpacing the FTSEurofirst 300, up some 6pc over the period.

This has seen the 12-month forward price/earnings ratio for the sector rise to around 11.9 times from about 9.4 times, putting it above its 10-year average of 10.5 times, Thomson Reuters Datastream shows.


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