European shares recovered yesterday as talk of takeover activity in the telecoms sector helped stock markets claw back losses suffered last week.
World stock markets fell from multi-year highs over the last three weeks
However, some traders expected European equities to be stuck in a relatively tight range in the near term while uncertainty persists over the future monetary policy of major central banks including the US Federal Reserve.
The pan-European FTSEurofirst 300 index closed up 0.7 per cent at 1,184.36 points, while the eurozone’s blue-chip Euro STOXX 50 index rose 1.3 per cent to end at 2,702.69 points.
The STOXX Europe 600 Telecoms Index was the best-performing sector, jumping 1.6 per cent after speculation that AT&T was interested in Spain’s Telefonica. Telefonica said AT&T had not shown any interest.
Telefonica rose 2.4 per cent while UK peer Vodafone, whose Verizon Wireless venture has also been subject to bid speculation, rose 1.5 per cent, with Telefonica and Vodafone together adding the most points to the FTSEurofirst 300.
Despite the market recovery, Logic Investments’ strategy head Peter Rice said the rebound did not look wholly convincing, with the FTSEurofirst 300 still down some six per cent from a five-and-a-half-year peak of 1,258.09 points struck in late May.
“The rallies look corrective in nature. We don’t see any new money participating in it. We’re still a good way off the May highs and we still look stuck in a range. If anything, the risk still remains to the downside,” said Rice.
The FTSEurofirst 300 has gained five per cent since the start of 2013 and the Euro STOXX 50 is up three per cent.
World stock markets fell from multi-year highs over the last three weeks as speculation built up that the Federal Reserve may soon taper economic stimulus measures that have contributed to the global equity rally.
Some investors added to equity positions on Friday and yesterday on expectations that a Fed meeting this week will reinforce its commitment to helping the US economy.
“Expectations had swung aggressively in a hawkish direction over the last couple of weeks. But there is definitely a bit of a shift going on in the market as people are anticipating somewhat dovish rhetoric from Bernanke,” said Macquarie strategist Daniel McCormack.
Others were more cautious.
Darren Courtney-Cook, head of trading at Central Markets Investment Management, said there was a still a chance that investors would use worries about the Fed’s future policy to sell shares and book profits on the equity market rally.
However, he expected that any weakness over the coming two months would be followed by renewed gains for equities, which still offer better returns than bonds, which have been hit by injections of liquidity and interest rate cuts by central banks.
“I think there may be a wash-out over the summer and then people will buy back into the market after the summer and into the year-end,” he said.