European markets lifted by China data


European shares rose early today after inflation data from China left the door open for more monetary policy easing from the world's second biggest economy.

By 8.28am, the FTSEurofirst 300 was up 2.95 points, or 0.3 per cent, at 1,099.00, having held near four-month highs yesterday as the index gained 0.2 per cent and rose for the fourth consecutive session.

Miners gained for a second day running after China, the world's biggest consumer of raw materials, revealed annual consumer inflation fell to a 30-month low last month. The data suggested the central bank has scope to ease policy further to prevent the economy from missing an official 2012 growth target of 7.5 per cent.

"Expectations of more coordinated central bank stimulus is one trigger for the (European) summer rally continuing, but markets are also focusing on expectations of growth for next year and it is hoping for an improvement," Achim Matzke, European stock indexes analyst at Commerzbank, said.

The prospect of better earnings growth lifted Norwegian offshore engineering group Subsea 7 5 per cent higher after the firm beat market expectations with second-quarter earnings and remained bullish on its outlook.

Danish drugmaker Novo Nordisk jumped over five per cent after the company beat expectations for second-quarter revenue, while forecast-beating results also lifted food giant Nestle, up 2 per cent.

Germany's second biggest lender Commerzbank fell 1.8 per cent, however, after it said it expects net profit to shrink in the second half as the market environment deteriorates, prompting the bank to announce a strategic review.

Earnings on the whole remain mixed. Thomson Reuters StarMine data showed that three-quarters of Europe's Stoxx 600 companies had reported results so far, of which 50 per cent had met or exceeded forecasts, while the rest missed the estimates.

The FTSEurofirst 300 has rallied more than 15 per cent since hitting 2012 lows in early June with cyclical stocks propelling the market higher on expectations of further stimulus measures from central banks or aggressive growth policies from governments as economic data has waned.

Exane BNP Paribas said it preferred cyclicals to certain defensives, like food, beverages and household products and consumer, which look fully priced. From a country perspective it prefers the German Dax, Swedish OMX and UK FTSE, and it recommended taking longer positions in European equities versus their US peers as it anticipated further gains for European stocks.

"The 24 per cent underperformance of the Stoxx 600 relative to S&P 500 since 2010 could be viewed as the price of political inaction. But things are changing and Europe is beginning to outperform," Exane senior equity strategist Graham Bishop said. "Even after the recent rally, European equities remain cheap ... We think European markets can trade up on policy progression, whereas in the US the debate about QE3 is finely balanced, which might temporarily limit US equity upside."


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