European shares hit a one-week closing high yesterday and posted their biggest daily rise in three months, after encouraging Chinese economic data and a record high on a leading US equity index.
Sectors that generally perform better on signs of improvement in economic activity were the top gainers, with banking, autos, construction and mining stocks all surging after data showed a surprisingly big rise in imports in China, the world’s second-largest economy.
That raised expectations that domestic demand was gathering the steam needed to drive a recovery in the economy, which in turn would help the global economy to gather momentum.
The FTSEurofirst 300 index ended 1.8 per cent firmer at 1,186.17 points, the highest close since April 3 and the biggest one-day gain in three months, also helped by the US S&P 500 index’s rise to a new all-time high.
Some analysts said the European share moves yesterday were a knee-jerk reaction to the Chinese numbers and that the medium-term outlook for stocks remained challenging.
“China’s import figures show the economy is doing well. These numbers are quite positive for the market in the short run, but its impact, especially on commodity stocks, will be neutral in the medium term,” said Christian Stocker, equity strategist at UniCredit in Munich.
“We are in a volatile environment and the focus is on earnings. In Europe, we are cautious on the earnings reports of industrial companies, which have a negative outlook because of poor growth in the region and low industrial production.”
The STOXX Europe 600 Industrial Goods & Services index rose two per cent but underperformed several cyclical sectors such as banks, up 3.5 per cent, insurance , up 2.8 per cent, and autos, up 2.6 per cent.
“We have just downgraded industrials on the basis that the March data prints in Europe were disappointing. You need to have a more balanced approach to the markets at the moment, rather than be full on outright cyclicals,” said Graham Bishop, senior equity strategist at Exane BNP Paribas.
However, yesterday was a winning day for cyclicals. A strong gain in financials also on the back of Japan’s aggressive monetary easing policy and a potential extension of loans to debt-stricken Ireland and Portugal helped several regional indexes to outperform the wider market.
A 4.3 to 7 per cent jump in Spanish banks such as Bankinter, BBVA, Banco Popular and Santander helped the country’s benchmark share index to advance 3.4 per cent, while Italy’s FTSE MIB was up 3.2 per cent on stronger banks and auto stocks.
The eurozone’s blue chip Euro STOXX 50 index gained 2.6 per cent to 2,661.62, with the index closing just above its 50-day moving average, prompting some investors to advise caution in the near term.
“Along with most other leading indices, the Euro Stoxx 50 has found solid support. But I expect the rally to start losing momentum over the coming few days once profit-taking takes hold,” said Fawad Razaqzada, technical analyst at GFT Markets.
Some analysts argued the stock market’s longer-term outlook remained positive. Liquidity injected by central banks across the world was a dominant driver and equity valuations are not yet a problem for the market, they said.