European shares end broadly steady, off the day’s lows

European shares ended broadly steady yesterday, recovering from the session’s lows after upbeat US retail sales and a drop in jobless claims prompted bargain hunters to pick up battered mining and banking stocks.

The better-than-expected US data fuelled expectations the economy is shaking off a soft patch seen in the past few weeks, eclipsing recent worries the Federal Reserve could soon start to scale back its stimulus measures.

“We think the Fed will start to trim the amount of bonds it buys around the third quarter, but it shouldn’t spark a sell-off in equities because the Fed’s move will in fact confirm that the US economy is in a better shape,” said Benoit Peloille, equity strategist at Natixis, in Paris.

The FTSEurofirst 300 index of top European shares closed 0.07 per cent at 1,173.98 points, while the euro zone’s blue-chip Euro STOXX 50 index ended 0.18 per cent lower at 2,661.71 points.

The two indexes had fallen as much as 1.7 per cent and 1.9 per cent respectively earlier in the session, with both testing major support levels representing 200-day moving averages, before bouncing back, sending a positive technical signal.

“Volatility should stay high until next week’s Fed meeting, where they will probably try to calm down the market,” said Bernard Kalfon, head of volatility strategy and risk management at Geneva-based Union Bancaire Privee, which has 83 billion Swiss Francs ($90.1 billion) in assets under management.

The Euro STOXX 50 Volatility Index, known as the VSTOXX, surged as much as 9.9 per cent yesterday to a three-and-a-half month high of 23.8, before losing steam to 22.11.

The VSTOXX, Europe’s gauge of investor sentiment which is based on put and call options on Euro STOXX 50 stocks and is used to measure the cost of protecting stock holdings against market corrections, has soared 40 per cent since mid-May.

“The volatility has risen quite a lot already in the past few weeks, and we’ve started to book profits on put options at these levels. I don’t expect a serious drop in stocks... It remains the most attractive asset class,” UBP’s Kalfon said.

Around Europe, UK’s FTSE 100 index gained 0.08 per cent, Germany’s DAX index fell 0.6 per cent and France’s CAC 40 inched 0.1 per cent higher.

Among the day’s top gainers were miner Rio Tinto, up 2.6 per cent, French bank BNP Paribas, up 1.6 per cent, and Italian lender UniCredit, up 2.5 per cent.

Mining shares – by far the worst sector so far this year, down 21 per cent – got a boost from news that China plans to scrap its decade-old iron ore import licensing system, a move that could lift the country’s imports.