London: European shares gained for a fourth straight day in choppy trade on Friday, helped by cyclical stocks, with encouraging earnings reports from more companies and recent positive US economic data feeding the view that conditions are improving.
Swedish machinery and tool maker Sandvik jumped 10.9% and trading volumes hit 200% of its 90-day average after it reported record orders. France’s Vinci rose 3.9% after reporting a 6% rise in the first quarter revenue and raising its 2012 sales target.
French drugmaker Sanofi rose 2.8% after posting better-than-expected quarterly results, bolstered by strong emerging markets. Trading volumes were near 100% of the 90-day daily average.
“The markets have been overwhelmed by the extent of the earnings surprise. That’s a very positive development and does mean that earnings expectations are going to be revised back up. That alone is a very persuasive support,” said Mike Lenhoff, chief strategist at Brewin Dolphin.
“If you are taking a 12 to 18 months view, then you could move away from more defensive areas of the market.”
Sectors generally perceived as defensive plays, such as food and drinks and telecoms were on the back foot, with their indexes down 0.8% and 0.3% respectively.
Cyclical sectors such as banks, construction and materials, travel and automobiles were up 0.2 to 2.0%.
Richard Taylor, head of international equity research at Jefferies, a global securities and investment banking firm, said he was relatively optimistic on the earnings season.
“We don’t think the first quarter reporting season typically drives a huge shift in the full year consensus. So it’s not going to make stocks look a lot cheaper, but the lack of any significant negative surprises can be enough to keep the market trending higher.”
At 4:42pm, The FTSEurofirst 300 index of top European shares was up 0.3% at 1,047.16 points after falling to a low of 1,034.54 following a two-notch cut in Spain’s credit rating overnight.
The euro zone’s blue chip Euro STOXX 50 index was, however, flat at 2,324.58 points. Its technical chart showed the index could face some pressure in the coming days.
“We are in an overriding consolidation phase and given the weakness of countries like Spain and Italy and the composition of the Euro STOXX 50, I see the relative weakness of this index for quite some time,” said Petra von Kerssenbrock, analyst at Commerzbank.
She said resistance for the index was seen near its 200-day moving average around 2,350. The index could find support around 2,238 - the low hit on 23 April. Below that, it had a big support line at the December low near 2,200.
Despite gains in equities on Friday, investors remained cautious after Standard & Poor’s cut its rating on Spain by two notches late on Thursday, reminding investors that the region’s debt woes will continue to scare markets.
The credit agency, citing expectations Spain’s finances will deteriorate even more than thought due to the recession and the country’s ailing banking sector, downgraded the country to BBB-plus from A and put a negative outlook on the credit.
“This downgrade shows that governments in Europe are still struggling to get their budgets in balance. We are probably going to see more downgrades from other rating agencies,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.
European equity funds suffered their biggest weekly outflows since May 2010, and globally the asset class is on track for its worst April in 16 years, Bank of America Merrill Lynch said, citing EPFR data.
Among other sharp movers, Norway’s DNB fell 9.3% after missing first-quarter profit expectations due to a big one-off financial charge and warning that meeting its full-year target would be “challenging”.