Europe shares end sharply up on earnings, data

By Atul Prakash

LONDON (BestGrowthStock) – European shares surged to a one-week closing high on Thursday on strong earnings results and soothing macroeconomic numbers, although their medium-term outlook appeared bearish, analysts said.

The FTSEurofirst 300 index of top European shares finished 2.1 percent firmer at 1,039.35 points, the highest close since July 14, after rising to a high of 1,040.72 earlier in the day. It closed higher for a third straight session.

Technical charts showed the market faced tough resistance on the upside and its short- to medium-term outlook did not look good. Equities might face renewed selling pressure after the earnings season and summer holidays, the analysts said.

Miners featured among the top gainers on Thursday, supported by strong metals prices on the back of a weaker dollar. BHP Billiton, Anglo American, Antofagasta, Rio Tinto and ENRC rose 2.1 to 3.5 percent.

“We have got some positive earnings results in the U.S. and the PMI numbers came in significantly above the consensus. For today, that alleviates growth concerns,” said Tammo Greetfeld, equity strategist at UniCredit.

“But it’s not the beginning of a new trend to the positive. It’s just a positive day in a broad sideways movement/correction phase. We are convinced that in the course of the earnings season, deteriorating macroeconomic data will gain an upper hand and the equity markets will be dragged down.”

Sentiment was boosted after several U.S. companies posted impressive results. Caterpillar, the world’s largest maker of construction and mining equipment, reported a stronger-than-expected profit and raised its full-year outlook.

Profit jumped 43 percent at diversified manufacturer 3M Co

on strong demand in emerging markets, while package deliverer United Parcel Service, considered an economic bellwether, said its profit rose sharply.

The market witnessed a strong session on Thursday as figures showed the euro zone’s private sector surged ahead this month, confounding expectations for a slowdown in growth and further quelling concerns about a double-dip recession. U.S. existing home sales also fell less sharply than expected in June.

“Just when the macro picture was looking desperately gloomy, today’s numbers have given investors a ray of hope,” said Angus Campbell, head of sales at Capital Spreads.

MEDIUM-TERM OUTLOOK

However, analysts remained skeptical about the market’s ability to climb higher in the medium term.

“Once the earnings season is over and traders are back to their desks in September, investors are going to take a more sanguine view of the prospects for the markets, given the fact that governments and households are still in the midst of a massive de-leveraging process, which is by no means complete,” said Bill McNamara, an analyst at Charles Stanley.

“The medium term outlook for most of the equity indices is not great. However, it could rally some more in the summer because you get strange movements on thin volumes.”

The volume on the FTSEurofirst 300 was 84 percent of its 90-day daily average.

McNamara said the Euro STOXX 50, the euro zone’s blue-chip index, faced resistance at 2,768, which is a 62.8 percent Fibonacci retracement of the index’s major fall from April 27 to May 7. The index rose 2.8 percent to 2,714.21 points.

“That’s going to be a significant resistance area for this index in the medium term,” he added.

Financials raced higher, with the STOXX Europe 600 banking index rising 3.2 percent ahead of the results of stress tests for 91 European banks. Standard Chartered, Barclays, Societe Generale and Credit Agricole jumped 4.1 to 5.6 percent.

European bank supervisors are in the final stages of an exercise designed to convince markets that most of the continent’s banking sector can withstand another economic downturn and losses on government debt, and that authorities can deal with those banks that need support.

Across Europe, Britain’s FTSE 100, Germany’s DAX and France’s CAC 40 rose 1.9 to 3.1 percent.

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(Editing by Karen Foster)

Europe shares end sharply up on earnings, data