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European shares turn after eight-week fall

European shares turn after eight-week fall
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First Published: Mon, Jun 27 2011. 05 29 PM IST
Updated: Mon, Jun 27 2011. 05 30 PM IST
London: European shares edged up on Monday, after falling for eight straight weeks, with beaten-down banks ticking up and some strategists saying the worst-case scenario for heavily-indebted Greece is already priced in.
At 4:27pm, the pan-European FTSEurofirst 300 index of top shares was up 0.2% at 1,075.91 points, having fallen for eight straight weeks on worries over the euro zone peripheral debt crisis and weak macroeconomic data.
The index is down 5.8% in June, on track for its biggest monthly fall since February 2009.
Some heavyweight banks led the market higher. Italian banks Intesa SanPaolo and UniCredit , major fallers last week on worries about the need to raise capital and the Greek debt crisis, rose 0.5 and 0.4% respectively.
However, the STOXX Europe 600 Banking Index is down more than 9% this year. Many strategists still expect Greece to default, even if it is described as something else.
“I think people are feeling more comfortable with the notion of default and the consequences of that,” said Julian Wentzel, head of research at Macquarie. “And, to put it in perspective, with the size of the Greek economy, the biggest worry is contagion,” he added.
“What has given the market a bit of a fillip is the release of oil reserves, which is a sort of quantitative easing. It provides a measure of stimulus, without the inflationary effects.”
The price of Brent crude slipped below $103 a barrel on Monday, down 10% in the three trading sessions since the emergency oil stocks release by consumer countries.
Share prices to gain included airlines, heavy oil users, with International Airlines Group and Lufthansa , up 0.7 and 1.2% respectively.
Meanwhile French President Nicolas Sarkozy said on Monday his government had an agreement with French banks on rolling over Greek debt.
A Greek minister warned on Monday of “catastrophe” if parliament blocked a 28 billion-euro ($40 billion) package of tax increases and spending cuts after signs of revolt by some deputies in the ruling PASOK party. Without approval for the measures, the European Union and International Monetary Fund say they will not disburse the fifth tranche of Greece’s 110 billion-euro bailout programme.
Across Europe, Britain’s FTSE 100 , was up 0.3%; Germany’s DAX was flat.
France’s CAC40 rose 0.3%, having resumed trading following a technical problem.
The Thomson Reuters Peripheral Eurozone Countries Index was up 1%.
Some strategists pointed to cheap valuations. Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 index carrying a one-year forward price-to-earnings ratio of 10.2 against a 10-year average of 13.4.
“We think the market is pricing in a default scenario in Greece, while we expect a more benign outcome,” said Nomura strategists in a note. “With relatively positive news over the past few days, we think financials, especially the banks, are placed to rally.”
It added: “Our baseline scenario for Greece is one in which the EU will provide an additional package, with a rollover option for private sector involvement instead of a debt swap leading to a slow but orderly resolution. CDS markets are pricing in a high probability of default, which is also reflected in the underperformance of the banks sector.”
Among individual shares, paints company AkzoNobel fell 10.6% after warning its second-quarter earnings would fall due to a sharp rise in raw materials prices.
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First Published: Mon, Jun 27 2011. 05 29 PM IST
More Topics: Markets | Europe | Stocks | Greece | FTSE |