Europe shares hit 15-wk high
European shares hit a 15-week high on Thursday on a strong run of corporate results, notably from Electrolux and AkzoNobel, and fuelled by hopes of further policy tweaks to counter the euro zone debt crisis.
But several warnings from companies about a challenging economic outlook and a sharp rise in Spanish government bond yields at auction reminded investors that a bumpy road lies ahead.
The FTSEurofirst 300 index was 0.7 percent firmer at 1,061.71 points by 13:36 SA time. It hit 1,062.38, the highest since early April, after traders cited a newswire report quoted a draft memorandum as saying the EFSF bailout fund would set aside aid money to buy Spanish bonds.
The European Commission said the up to 100 billion euros ($122 billion) of aid that the euro zone had earmarked for Spain was only for recapitalising the country's banks and not for any other possible use such as bond market intervention.
Spain's five-year borrowing costs hit new euro-era highs at an auction as it struggles to persuade investors it can control its finances. The euro zone's debt problems have kept a rally in European stocks in check, with every bounce followed by a sell-off.
But company earnings cheered investors on Thursday, with the Euro STOXX 50 volatility index, Europe's main gauge of anxiety, falling 0.5 percent to a four-month low, signalling that investors' risk appetite had risen.
The FTSEurofirst 300 is on track for a seventh straight week of gains, the longest weekly winning run since mid-2005.
Electrolux rose 5.5 percent as its earnings topped forecasts, but it predicted a flat or slightly lower demand in its key European market this year.
“So far so good on the earnings season. This is helping to support share prices given that expectations for corporate earnings in Europe are low and valuations are depressed,” Robert Parkes, equity strategist at HSBC Securities, said.
“We expect a resilient performance in 2012, with earnings growth in the range of zero to 5 percent. We recommend a tilt to value and are overweight banks, energy, materials, telecoms and utilities.”
To date, 64 percent of European large and mid-cap companies have beaten or met second-quarter earnings forecasts, with profits up on average 3.4 percent year-on-year, according to Thomson Reuters StarMine data.
Nokia surged 13.7 percent after making a slightly smaller loss than expected and ending the second quarter with more cash than investors feared, despite losing market share to Apple and Samsung Electronics. The European technology index, up 2.2 percent, topped the gainers list.
Nokia's share price has fallen around 80 percent since February 2011 when the company decided to drop its own smartphone software in favour of a largely untried Windows system.
“The key forthcoming milestone ... is the launch of Windows Phone 8 and the level of consumer interest in the platform subsequently. Initial evidence of this is expected by Q4, 2012. Till then it is best to remain on the sidelines of this stock,” Liberum Capital said in a note.
AkzoNobel gained 5.8 percent also after beating estimates while warning of a tough environment and continuing high costs for raw materials. However, it helped the chemical sector, up 1.6 percent, to feature among the top gainers.
Citigroup said in a note on the chemicals sector it had included Linde and Lonza in its “Most Preferred stock” list, adding Linde was best placed to exploit growth opportunities, while Lonza offered defensiveness in an increasingly uncertain macro environment and valuations looked undemanding.
Charts pointed to a positive momentum for the euro zone's blue chip Euro STOXX 50 index, which rose 0.8 percent to 2,303.20 points. The index crossed the 100-day moving average and had a chance to reach the 2,326 where the 200-day moving average is located.
“For the moment, it's a summer rally. There is a medium- to long-term positive bias. Towards the year end, we see indices higher from where they are today,” Petra von Kerssenbrock, technical analyst at Commerzbank, said. - Reuters