European shares eased in late trade yesterday, as increased certainty over US government spending following a budget deal there was overshadowed by growing expectations that a scaling back of Federal Reserve stimulus is imminent.
US-exposed stocks such as cement-maker Lafarge and defence contractor BAE Systems were among the beneficiaries after budget negotiators in Washington reached a provisional two-year deal to avoid another government shutdown. Their shares added two and 2.6 per cent respectively.
With regard to the broader market, though, the implications were less clear, with some suggesting a resolution on the budget could pave the way for the Fed to start scaling back its equity-friendly stimulus as soon as next week’s meeting.
“It’s good news, but... as there is more evidence of such an agreement everybody will think that the Fed will have no reason to wait more to reduce their purchases of bonds and asset backed securities. So it’s good news, but is it good enough?” said Vincent Guenzi, chief strategist at Cholet Dupont.
The FTSEurofirst 300 was down 0.5 per cent at 1,256.32 points at the close, having given up earlier gains after Wall Street opened lower.
Meanwhile, Royal Bank of Scotland was among the top fallers in Europe with a 2.9 per cent drop after its finance director, Nathan Bostock, resigned to join Santander.
The biggest boost, however, came from EADS, which rose first on the US news and then extended gains after the aerospace company pledged to grow its dividends and reaffirmed targets on operating profits.
“It’s a top pick for me, so I am confident on the company,” Cholet Dupont’s Guenzi said.
“As they reconfirmed their margin targets, I think that is very good for the near term, and for next year. The stock is not very expensive so I think you can still target ... 10 per cent just to regain the discount with Boeing.”
EADS shares were up 7.5 per cent, their biggest one-day rally in a year and in heavy volumes three times their 90-day daily average.
Activity on the broader market was more subdued, with uncertainty over Fed policy keeping many players away.
At the close, volumes for the FTSEurofirst 300 were just 82 per cent of their daily average.
Turnover in the eurozone’s blue-chip EuroSTOXX 50 was near 80 per cent of its daily average, with the index down 0.5 per cent at 2,947.31 points. The EuroSTOXX 50 has dropped 4.5 per cent in December, taking it below its 50-day moving average to darken the near-term technical picture.
“I’m not sure that we’ve seen the bottom... last week’s closing low, at 2,953, is now the key level and if that gives way I think we could see a retreat back to 2,900,” Charles Stanley analyst Bill McNamara said.
Also yesterday Brent crude oil rose 11 cents at $109.49 a barrel. US crude futures for January delivery were $1.05 down at $97.46.
Gold fell from a three-week high to $1,255 an ounce.