BackEuropean shares set 13-month high on signs of economic improvment
European shares set 13-month high on signs of economic improvment
PremiumLondon: European shares extended gains to hit a 13-month high on Friday, continuing to draw support from the European Central Bank’s bond buying plan unveiled in the previous session, and with investors also betting on an improvement in US jobs figures due later.
Sentiment further improved after German exports unexpectedly edged up in July and on news that China, the world’s top commodities consumer, approved 60 infrastructure projects this week in a bid to boost the economy.
Cyclical sectors, which generally derive strength from an improvement in economic activity, led the rally. Banks, miners and construction shares rose 1.7 to 2.1%. French bank Natixis rose 4.7%.
Euro zone banks, up 3%, have shot up 47% since ECB President Mario Draghi said in late July the bank was ready to take all the necessary measures to save the euro. Spain’s IBEX has surged 33%, while Italy’s FTSE MIB is up 29%.
“I am positive on the market in the near term. You have got the policy response coming through, valuations are still OK and the macroeconomic backdrop isn’t all that bad. These three things add to the momentum in the market," Graham Bishop, equity strategist at Exane BNP Paribas, said.
After the ECB’s policy meeting on Thursday, focus has shifted to the US economic numbers. Expectations of a big rise in US non-farm payrolls numbers, due later, have risen since data on private sector employment showed robust growth for last month.
Although an encouraging jobs report would lower chances of an aggressive easing step at the Federal Reserve’s Sept. 12-13 policy meeting, investors would be happy to continue to buy stocks on hopes of a gradual economic recovery, analysts said.
Charts painted a positive picture after recent price movements and analysts said the euro zone’s blue chip Euro STOXX 50 index, up 1.4% at 2,559.29 points, hovered around a critical point.
“We need a weekly close above 2,500 to confirm a bullish trend. If it is achieved, and given that the US market is making new highs as well, it would be very encouraging," Tim Parker, technical analyst at Westhouse Securities, said.
He saw the index’s medium-term resistance at 3,000.
Among individual movers, Xstrata rose 5.5% as Glencore’s $34 billion takeover bid for the miner appeared to be back on after the commodities trader postponed a shareholder meeting on Friday that had been expected to vote on the faltering deal. Glencore fell 1.6%.
Glencore Chairman Simon Murray gave no details, telling shareholders in Zug, Switzerland, only that there had been “developments overnight", hinting at an improved deal.
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