European stocks drifted lower in thin trading volumes yesterday as the US budget impasse kept investors on edge, sending a benchmark index to a one-month closing low.
Luxury goods makers came under pressure after Burberry’s chief executive was quoted in French daily Les Echos as saying that the slowdown in luxury goods sales in China may constitute a new market trend.
Burberry dropped 1.2 per cent, France’s LVMH was down 1.1 per cent, and Swiss watch maker Richemont lost 0.9 per cent.
The FTSEurofirst 300 ended down 0.2 per cent at 1,241.09 points, its lowest close since September 9. Trading volume stood at 82 per cent of the 90-day daily average, with some investors sidelined pending fresh developments in Washington.
The Euro STOXX 50 shed 0.2 per cent to 2,923.04 points, having tested a support level earlier in the session at 2,900 that represents the 23.6 per cent Fibonacci retracement of the rally from late August to mid-September.
US Democrats and Republicans came no closer on Sunday to a budget deal to end a government shutdown, let alone a consensus on the US borrowing limit, which must be reached by October 17 to avert the possibility of an unprecedented default.
While the market is proving relatively resilient in the face of the US concerns, as seen in Monday’s modest falls, some analysts say it could start to sell off more significantly as the deadline draws nearer.“Gradually as this continues people might get a little bit more nervous ... we could correct five per cent from these levels, which could happen fairly quickly,” said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.
Gijsels said he would regard such a dip as a buying opportunity and would back mining stocks – which have lagged the market this year – on the basis that the global economy is picking up, which should feed through into demand for metals.
Miners trade on a 12-month forward price/earnings ratio of 12.1 times, compared with the wider STOXX Europe 600 on 12.9 times.
Despite a two-week slide, the FTSEurofirst 300 index is only 2.6 per cent off a five-year high hit in September, supported by steady investment inflows as a pick-up in the region’s economy encourages investors to switch out of government bonds.
According to fund-tracking firm EPFR Global, European equity funds have emerged as an “unlikely haven” for investors in the third quarter, enjoying record investment inflows. For the week ended October 2, European stock funds attracted $900 million in new cash, the 14th straight week of inflows, with retail investors committing fresh money into European stocks in six of the last eight weeks, EPFR said. (Reuters)
Charles Stanley technical analyst Bill McNamara reckons the Euro STOXX 50 would need to close below last week’s low, at 2,877 “before it would be appropriate to talk about a corrective phase”.
He would then expect to see further support at 2,855, the August peak.