In Europe: European shares up as China data lifts stimulus hopes

9 August 2012


“Expectations of more coordinated central bank stimulus” gives European markets a lift.

European shares rose early on Thursday after inflation data from China left the door open for more monetary policy easing from the world’s second biggest economy, underpinning expectations that global policymakers will act to boost growth.

By 0728 GMT, the FTSEurofirst 300 was up 2.95 points, or 0.3 percent, at 1,099.00, having held near four-month highs on Wednesday as the index gained 0.2 percent and rose for the fourth consecutive session.

Miners gained for a second day running after China, the world’s biggest consumer of raw materials, revealed annual consumer inflation fell to a 30-month low last month. The data suggested the central bank has scope to ease policy further to prevent the economy from missing an official 2012 growth target of 7.5 percent.

“Expectations of more coordinated central bank stimulus is one trigger for the (European) summer rally continuing, but markets are also focusing on expectations of growth for next year and it is hoping for an improvement,” Achim Matzke, European stock indexes analyst at Commerzbank, said.

Matzke expected European indexes at the very least to test 2012 highs reached back in March in the coming months with European equities still trading at a discount because of the euro zone debt crisis, and he says the UK’s FTSE 100 could even reach 6,100 – a level not seen since second-quarter 2011.

The prospect of better earnings growth lifted Norwegian offshore engineering group Subsea 7 5 percent higher after the firm beat market expectations with second-quarter earnings and remained bullish on its outlook.

Danish drugmaker Novo Nordisk jumped over five percent after the company beat expectations for second-quarter revenue, while forecast-beating results also lifted food giant Nestle, up 2 percent.

Germany’s second biggest lender Commerzbank fell 1.8 percent, however, after it said it expects net profit to shrink in the second half as the market environment deteriorates, prompting the bank to announce a strategic review.

Earnings on the whole remain mixed. Thomson Reuters StarMine data showed that three-quarters of Europe’s STOXX 600 companies had reported results so far, of which 50 percent had met or exceeded forecasts, while the rest missed the estimates.

MORE TO COME

The FTSEurofirst 300 has rallied more than 15 percent since hitting 2012 lows in early June with cyclical stocks propelling the market higher on expectations of further stimulus measures from central banks or aggressive growth policies from governments as economic data has waned.

Exane BNP Paribas said it preferred cyclicals to certain defensives, like food, beverages and household products and consumer, which look fully priced. From a country perspective it prefers the German Dax, Swedish OMX and UK FTSE, and it recommended taking longer positions in European equities versus their U.S. peers as it anticipated further gains for European stocks.

“The 24 percent underperformance of the Stoxx 600 relative to S&P 500 since 2010 could be viewed as the price of political inaction. But things are changing and Europe is beginning to outperform,” Exane senior equity strategist Graham Bishop said.

“Even after the recent rally, European equities remain cheap … We think European markets can trade up on policy progression, whereas in the U.S. the debate about QE3 is finely balanced, which might temporarily limit U.S. equity upside.”

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