European shares rose yesterday, boosted by the formation of an Italian government after a two-month impasse and by expectations of fresh stimulus from global central banks.
People will realize how dire the economic situation still is
Italy’s FTSE MIB index was the best performer in the region, rising 2.2 per cent as investors new Prime Minister Enrico Letta promised to push for a change to Europe’s focus on austerity and pursue growth.
The pan-European FTSEurofirst 300 index rose 0.5 per cent to 1,202.89 points and the euro zone Euro STOXX 50 surged 1.3 per cent to 2,717.38 points.
They were also lifted by rising expectations of further monetary support from the US Federal Reserve and the European Central Bank later this week after lower-than-expected US and German inflation figures.
With the FTSEurofirst 300 up 4.8 per cent since April 18, some investors believe that any new central bank action is already in the price and scope for more gains is limited.
“We’ve seen a few positive developments... but they are relatively small if you compare them to the fundamental weakening economic growth,” Wouter Sturkenboom, investment strategist at Russel Investments, said.
“It’s a short term bounce we’re seeing right now but after that we should prepare for some weakness given the structural problems that we are facing.”
He expected a 10-15 per cent pullback in European shares over the next few months as the political debate in Europe becomes more tense in the run-up to German elections in the autumn.
Some shorter-term brokers also recommended profit taking upon the central banks’ announcements later this week. “Buy the dips until tomorrow and then it’s over,” Justin Haque, a broker at Hobart Capital Markets, said.
“Once they (the central bankers) have done their little theatre this week, people will realise how dire the economic situation still is.”
Ebullient markets thanks to monetary stimulus were a key driver behind a 25 per cent revenue rise for British fund management firm Aberdeen Asset Management, which saw its shares rise eight per cent to the top of FTSEurofirst 300 as it unveiled its first-half results.
Cigar and moist snuff maker Swedish Match rose 6.7 per cent in volume twice its 90-day average, as it posted a rise in first-quarter operating profits, although this was partly thanks to the sale of some of its real estate.
Of the 34 per cent of STOXX 600 companies that have posted quarterly earnings so far, only 46 per cent have met or beaten earnings forecasts, Thomson Reuters StarMine data shows.