Business World

Tuesday 12 December 2017

European stocks rally to multi-year highs on stimulus hopes

EUROPE’S top equity indexes bounced to multi-year highs on Tuesday, propelled by the breach of key technical levels, a crop of upbeat corporate outlooks and the prospect of continued stimulus from global central banks.

The European Central Bank, the Bank of England and the Bank of Japan are all expected to stick to ultra easy monetary policy at meetings this week, following on from reassurances by U.S. Federal Reserve officials that their stimulus programme is also here to stay, for now.

Analysts even see some scope for fresh action in Europe on Thursday, giving a 40pc chance for more bond buying from the Bank of England and a 10pc  likelihood of an interest rate cut from the ECB.

A rally in the U.S. Dow Jones Industrial Average to record intra-day highs helped European bourses accelerate gains in afternoon trade, as did stronger than expected data on the U.S. services sector.

The pan-European FTSEurofirst 300 index closed up 1.8pc at 1,189.02 points, its highest finish in 4-1/2 years but just short of the February 2011 intra-day peak of 1,191.56 points.

"There are many (European) stocks hitting yearly new highs and that's positive," said Riccardo Ronco, head of technical analysis at Aviate Global, noting particular strength in industrials, consumer discretionary and consumer staples.

"I am not fighting that kind of information because it is very strong. But this is a very messy market ... You should tighten your stop-losses and you have to be in the right segments."

He highlighted the relative underperformance of the EuroSTOXX 50 euro zone blue chip index, which despite adding 2.4pc on Tuesday is still worth less than half of its life high set in 2000, as one reason for caution.

"If the leaders do not lead, then what happens to the rest? So follow the trend, by all means, don't fight the Fed, but you have to select very carefully where you put your money," he said.

Tuesday's volumes also added a note of caution, coming in markedly below the activity seen during recent big sell offs.

Among individual stocks, Deutsche Post and British energy services firm Wood Group cashed in on brighter outlooks, adding 5.8 and 7.9pc, respectively, while Fiat rose after confirming its 2013 targets.

Commodities group Glencore and miner Xstrata , also rallied after reporting what could be their last set of individual results before a planned merger and raising dividends.

But overall the 2012 earnings season in Europe has been relatively soft, with around 42 percent of large and mid-cap companies missing forecasts to-date against just 31 percent of in the United States, according to Thomson Reuters Starmine data.

"There seems to be a bit of a decoupling opening up between the United States, which seems to be moving onto a sustainable growth path, and Europe," said Ted Scott, director of global strategy at asset manager F&C.

"With the rally in the markets, they are no longer undervalued from our point of view and the underlying economic fundamentals haven't change that much ... I would say it's time to take profits in the German market as well as other euro zone markets."

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