Strong data from the US helps stocks in Europe to recover

European shares recouped their earlier losses to end flat near four- and-a-half-year highs yesterday, with sentiment improving after robust US retail sales data pointed to a continued recovery in the world’s biggest economy.

However, Italy’s FTSE MIB index, down 1.7 per cent to 15,745.34 points, underperformed the market following weaker demand at its first bond auction since Fitch cut the country’s credit rating.

Analysts said the broader stock market was poised to resume its recent rally in the coming days as the improving economic outlook could prompt more investors to put their money in equities at the expense of other asset classes.

The FTSEurofirst 300 index of top European shares ended flat at 1,194.11 points, after hitting an intra-day low of 1,188.98. It recovered after data showed US retail sales rose more than expected in February, the largest increase since September. “The underlying sentiment is pretty bullish. People are neglecting several uncertainties and focusing on growth as hopes for a recovery in the global economy have improved. Equities are a better alternative to invest in in the current environment,” Christian Stocker, strategist at UniCredit in Munich, said.

“In the next two to four weeks, the DAX could set a new high above 8,200,” he said, referring to Germany’s benchmark index , which rose 0.1 per cent to 7,970.91 points.

The euro zone’s blue chip Euro STOXX 50 index fell 0.3 per cent to 2,704.73 per cent. However, charts suggested the index could resume its uptrend.

“The index is consolidating after last week’s rally but the downside potential is very limited,” Roelof-Jan van den Akker, senior technical analyst at ING Commercial Banking, said.

“This short-term consolidation will take place above its 50-day moving average of 2,675 and a horizontal support of 2,666, from where the recent rally should resume.”

The index could test the strong horizontal resistance at 2,885 on the weekly chart in a couple of weeks, he said.

At a time when several European stock indexes are hovering near their multi-year highs, Italy’s FTSE MIB index has been strongly underperforming, down about 12 per cent since late January as the country’s political crisis has spooked investors.

Charts showed the index was stuck in a six-week downward channel, testing a key support level at 15,812 points, representing the 38.2-per cent Fibonacci retracement of the index’s sharp rally sparked last July by European Central Bank President Mario Draghi’s commitment to safeguard the euro.

Although, overall outlook for the European stock market remained positive, the situation in Italy and slow growth in Europe prompted some analysts to advise caution in investing further money in equities in the near term.