Markets gain but investors cautious
European shares advanced today, with a strong start to the US earnings season helping them consolidate after recent falls even as investors remained cautious about the outlook for Spain ahead of a bond auction this week.
The FTSEurofirst 300 was up 3.93 points, or 0.4 per cent, at 1,031.66 by 9.52am, having closed down 1.6 per cent on Friday, which took its weekly drop to 2.3 per cent and saw it chalk up a fourth consecutive weekly loss.
Miners, hurt in the previous session by demand concerns after data showing a dip in US consumer sentiment and weaker-than-forecast Chinese GDP data, staged a recovery today, supported by bullish broker comment.
Both Citigroup and JPMorgan saw near-term strength in the sector following recent steep falls. The Stoxx Europe 600 Basic Resources index dropped 8.2 per cent in March.
International Power grabbed the top spot on the FTSEurofirst 300 leader board, ahead by 3.2 per cent, after French utility GDF Suez agreed to buy the 30 per cent of the British power producer it did not already own for £6.8 billion.
Trading volumes in International Power were robust, at more than five times its 90-day daily average volume.
Shares in GDF Suez put on 2 per cent.
Dutch telecoms firm KPN also saw good gains, up 2 per cent, after it said it was reviewing the strategic options for its Belgian mobile phone operations and had not yet decided whether to sell the business
KPN is considering selling the Belgian unit, known as BASE, in a deal possibly worth €1.8 billion, Bloomberg reported at the weekend, adding that BASE will probably attract interest from private equity firms such as Apax Partners LLP.
Madrid's IBEX 35 came under renewed selling pressure today as Spanish 10-year government bond yields broke above 6 per cent for the first time this year and the cost to insure the country's debt against default hit a fresh record high.
Banks, the biggest holders of European sovereign debt, were out of favour, led down by a 4.7-per cent drop in Lloyds Banking Group on reports the Co-op is close to abandoning its £1.5 billion bid for 632 Lloyds bank branches.
Some strategists remained constructive on equities, after the US earnings season kicked off on a high note with better than expected results from Alcoa, and a strong earnings report from JPMorgan.
"We are still very optimistic on markets and continue to reiterate that investors should take advantage of any weakness to harness long-term exposure to a strong asset class," Henk Potts, equity strategist at Barclays Wealth, said.
"The corporate reporting season got off to a pretty good start ... Some analysts have been suggesting that margins could be under pressure. I think if we do see margins dip it will be temporary and not part of a new trend."
Andrew Bell, chief executive of Witan, a £1.1 billion investment trust, said while the spike in euro zone worries is a sign the region's underlying problems have not been solved, 2012 will likely be a "softer echo" of last year.
"I expect less turmoil in equity markets, which look modestly valued against some government bond markets which are ludicrously overvalued."
"US growth is better established than last year, fears of a general relapse into recession have been allayed, emerging economies are now easing policy, not tightening, and Europe has developed tools to keep the markets for sovereign bonds and bank liquidity working."
US retail sales data, due at 1.30pm Irish time, will fall under the spotlight today in the aftermath of Friday's US consumer sentiment data.
In Asia, China's yuan weakened after the central bank doubled the size of the currency's trading band over the weekend, a crucial reform in the process of liberalising the country's nascent financial markets.
A firmer dollar on the back of the euro zone's woes, and worries about slowing demand from China, also weighed on a broad range of commodities from precious metals and copper to oil.
MSCI's broadest index of Asia Pacific shares outside Japan fell 0.8 per cent, dragged lower by the materials sector, which underperformed other sub-indexes with the broad drop in commodities prices. Japan's Nikkei average shed as much as 1.6 per cent.
Asian credit markets eased, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 5 basis points.
"There's not much optimism out there. We think the second quarter should be the low point of this cycle as far as economic growth is concerned," said Jeremy Friesen, commodity strategist at Société Génerale.
Investor sentiment has also been hurt by worries about slackening demand from China, the world's second largest economy, after data showing a slowdown in private domestic demand, retail sales and fixed asset investment and a sharp drop in property and home sales, which weigh on construction demand.
But most analysts say the data remains consistent with a "soft landing" scenario for the Chinese economy.