European shares held firm yesterday, with a key index hitting two-year highs, bolstered by stronger-than-expected US data and a clutch of positive analyst comments on construction and technology stocks.
US weekly jobless claims fell sharply and, though some of that appeared to be due to technical problems, the data offered fresh signs of strength in the world’s biggest economy .
Improving performance in the United States was one of the reasons cited by Citi analysts for starting coverage of Coloplast with a ‘buy’, helping send shares in the Danish healthcare product maker some three per cent higher.
The global economic pick-up also prompted Citi to upgrade Bouygues, forecasting that its construction arm would benefit. Shares in the French company added 7.2 per cent.
Although more analysts are still cutting forecasts for European companies than raising them, earnings momentum – upgrades minus downgrades over the past month – on STOXX Europe 600 has stabilised at just below zero and around its 10-year average, according to Thomson Reuters Datastream.
“There is a growing amount of evidence that the wider economy is getting better, companies themselves are a bit more confident,” said Peter Botham, CIO at Brown Shipley.
“What we need now is for earnings forecasts to start going ahead, and instead of getting downgrades to get upgrades as we go into the growth cycle,” he added, forecasting that rising profits will drive stock markets higher into next year.
The more positive economic backdrop and accompanying notes of analyst optimism helped to support the broad European market yesterday. The FTSEurofirst 300 closed flat at 1,247.31 points, off an earlier three-and-a-half month intra-day high. The EuroSTOXX 50 index of euro zone blue-chips, meanwhile, hit two-year highs at 2,870.18 points, before finishing slightly lower on the day at 2,862.07.
Gains, however, were capped by international tensions over Syria and uncertainty over how and when the US Federal Reserve will scale back its stimulus programme.
On the downside, Swiss luxury goods group Richemont fell 3.5 per cent after five-month sales missed expectations, with the company reporting weak demand for its high-end watches in mainland China.
“The luxury sector has not been too bad recently, but it’s unfortunate to see this weakness in the China market, which hitherto has been so strong,” Chris Beauchamp, analyst at IG, said.
“A clampdown on officials’ gifting policies – (a practice) that has been so prevalent in the upper echelons of the Chinese government – won’t help Richemont.”