European shares inched higher yesterday, consolidating near multi-year highs as investors awaited a new catalyst to drive equities out of their current tight trading range.
The FTSEurofirst 300 closed 1.31 points higher at 1,296.92 points, within a whisker of a five-and-a-half-year closing high of 1,304.25 seen on Monday, but within a 40-point range from which the index has barely broken out since late October.
The eurozone’s blue chip index closed up 11.64 points at 3,055.98, with trading volumes light on both indexes, at just 40 per cent of their 90-day daily average.
“The overall impression is that the (Stoxx50) is still struggling to move beyond the peak that was reached in February 2011, at 3,077, which itself was the high-water mark since 2008,” Charles Stanley analyst Bill McNamara said.
“Given that the index is ahead by 15.5 per cent for the year there is no great pressure on investors to chase it higher at this point, and although further upside is possible in the near term I’d be surprised if it ended the year much above 3,100.”
Equity markets remain supported by central bank stimulus, which has dulled returns in alternative asset classes such as bonds and cash, and traders said the recent lull could be a sign that investors are gearing themselves up for a year-end push.
“European equity markets remain very close to their highs with any pullbacks only minor. Unless something changes, further gains into year-end are most likely,” said Lex van Dam, hedge fund manager at Hampstead Capital.
Central banks’ commitment to supporting their economies has driven down equity risk premium and volatility, a sign that investors remain sanguine toward stocks.
The Euro STOXX 50 Volatility Index, which reflects options pricing and demand to protect against falls in the under-lying cash market, hit levels not seen since early 2007 earlier yesterday.
“Very few people feel the need to hedge their positions at the moment, very few people are buying volatility,” said Vincent Cassot, head of equity derivatives strategy at Societe Generale.
“That’s the short-term picture, however. Investors are feeling relaxed for the rest of 2013, but a little less relaxed for the start of 2014 (when US budget talks are set to resume). The curve is quite steep between the spot V2X, and the January contract, which currently trades at 18.65.”
The spot V2X is at 14.3.
Investors are still putting their money into equities. European shares enjoyed a 21st straight week of inflows from US investors in the seven days to November 20, according to Thomson Reuters’ Lipper service. That was the longest streak of weekly inflows since Lipper started to monitor flows in 1992. (Reuters)