European stocks climbed yesterday, extending their two-week rally, helped by M&A fever as well as robust French and US factory data.
France’s blue chip index CAC 40 hit a five-and-a-half-year high, gaining 0.8 per cent on the day, after data showed the manufacturing sector emerging from a long decline to grow even more strongly in March than initially estimated.
Overall, data showed growth in eurozone manufacturing eased slightly as expected, but the broad rise in output made the bloc’s economic recovery look more entrenched, fuelling hopes of a long-awaited rebound in corporate profits.
Spanish stocks also rallied strongly, with the IBEX gaining 1.2 per cent. A government source said yesterday Spain could raise its 2014 GDP growth forecast to between one per cent and 1.5 per cent as an economic recovery gathers pace.
In a similar picture from the other side of the Atlantic, the Institute for Supply Management (ISM) said its index of US factory activity rose to 53.7 in March, up slightly from February’s read of 53.2, accelerating for a second straight month as production rebounded. The FTSEurofirst 300 index of top European shares ended 0.6 per cent higher at 1,340.96 points, gaining ground for the sixth consecutive session. The benchmark index – which recorded a gain of 1.3 per cent in the first quarter – has risen about five per cent since mid-March.
The eurozone’s blue-chip Euro STOXX 50 index rose 0.8 per cent yesterday, to 3,186.34 points, hitting a level not seen since September 2008.
The European stock market’s rally in the past few days has been fuelled in part by mounting expectations of new stimulus measures from the European Central Bank, cemented by lower-than-expected euro zone inflation data.
Last week, ECB policymaker Jens Weidmann said negative interest rates were an option, and that buying loans and other assets from banks to support the bloc was not out of the question. His comments surprised investors, given the monetary conservatism of the German central bank he heads.
“The comments made by Weidmann were very clear: the door is now open for quantitative easing in Europe, which is very good news for markets. This could be a game changer,” Valquant strategist Eric Galiegue said.
“But beyond the support from the ECB, investors have plenty of reasons to be cautious at this stage.