European shares climbed to an eight-week closing high yesterday, led by stocks that generally perform better during an economic recovery, with robust eurozone surveys and some strong company results boosting sentiment.
The latest 10 per cent rally since a seven-month low just a month ago appeared to have more steam compared to the rise in April and May that saw the FTSEurofirst 300 index gain 10 per cent before falling 12 per cent in the following weeks, analysts and fund managers said.
The index closed 0.6 per cent firmer at 1,214.63 points, the highest close since late May.
Yesterday’s highlight was a sharp rise in cyclicals, which generally outperform others during sound economic conditions and fall faster on signs of a slowdown, as an improving growth outlook in Europe and the United States prompted investors to buy into sectors like travel, autos, banks and construction.
“We are now looking at the European market a little bit more positively and cautiously buying into the dips ... equities are in a sweet spot in terms of improving economic indicators and as earnings are starting to surprise on the positive side,” Oliver Wallin, investment director at Octopus Investments, said.
Analysts said surveys showing the eurozone’s private industry unexpectedly bounced back to growth this month and new US home sales surged to a five-year high in June had improved investor appetite for risk, offsetting concerns of a reduction in US stimulus measures.
The improving economic outlook was also reflected in company earnings, with British chip designer ARM Holdings beating expectations with a 30 per cent rise in adjusted pretax profit in the second quarter and easyJet forecasting earnings ahead of expectations. EasyJet shares were 3.7 per cent higher after setting a record high, helping the European Travel and Leisure sector to the top gainers’ slot.
ARM shares rose more than four per cent before surrendering gains later on profit taking.
However, technical analysts advised some caution in the near term, but said the Euro STOXX 50 index’s medium-to longer-term outlook remained positive.
The index rose one per cent to 2,752.25 points yesterday.
“For the very short term, the bias is on the downside as the index’s rally stopped near its horizontal support resistance of 2,750,” Roelof-Jan van den Akker, senior technical analyst at ING Commercial Banking, said.
“We are still in an uptrend but currently seeing that prices are failing to convincingly break the horizontal resistance level.”