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European shares set for strongest weekly gains since July

Risk appetite returns to markets
posted onSeptember 14, 2018
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European shares rose on Friday after Asian markets climbed as trade war concerns eased. In London, the FTSE 100 opened 0.37% higher, in Frankfurt the DAX added 0.36% while in Paris, the CAC 40 started 0.41% in the green.

Stoxx 600, the pan-European benchmark, was up around 0.4 percent during early morning deals, with almost all sectors and major bourses in positive territory.

Hopes for China-US trade talks 

Risk appetite has risen as media reports suggested the possibility of a fresh round of trade talks between the United States and China. Investors also digested central bank-related news. Dow Jones reported earlier this week that U.S. Treasury Secretary Steven Mnuchin sent an invitation to senior Chinese officials, proposing a meeting in the next few weeks. On Thursday, China’s Foreign Ministry said that the government has received the invitation and welcomes it. 

News from central banks 
Meanwhile, digested fresh news out of the central banking sphere. Both the European Central Bank (ECB) and Bank of England (BoE) held interest rates steady. The Governing Council of ECB "expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2 percent over the medium term," the Frankfurt-based institution said in a Thursday statement. 

The BoE also decided to maintain the bond purchase program at the current level. 
Turkey's central bank moved to battle soaring inflation and support the lira, ramping up interest rates to 24% from 17.5%. The surprise move eased investor concerns about emerging markets. 
“The bold decision (by Turkey’s central bank) reduces the risk that a full-scale financial crisis may unfold,” wrote analysts at Rabobank in a note to clients. 

Autos and tech lead the gains

Autos and tech helped European shares to seal their strongest weekly gains since July, Reuters reported.

Topping the STOXX was British banking and asset management group Investec which jumped 12 percent after announcing it would demerge and separately list its asset management arm. 

Automakers rose 0.7 percent, building on the previous session’s rise. Daimler gained 1 percent, Volkswagen jumped 1.6 percent and Renault advanced 2.5 percent. 

investec

(Investec PLC Source: Reuters)

Tech stocks were also among top gainers, up 0.2 percent after Apple climbed further on Wall Street overnight. Chipmakers Infineon and STMicroelectronics both rose around 2 percent. 

On the economic front, the euro area  recorded a €17.6 bn surplus in trade in goods with the rest of the world in July 2018, compared with +€21.6 bn in July 2017. Intra-euro area trade rose to €162.3 bn in July 2018, up by 9.3% compared with July 2017, figures from Eurostat showed.

The euro hit a two-week high, extending Thursday’s gains, after ECB  chief Mario Draghi  reaffirmed his confidence in the economic state of the euro zone. 

US equities look better than European

Global investors dump European shares this year opting instead for U.S. stocks, lured by significantly stronger earnings growth there, Bank of America Merrill Lynch said. Some $57 billion has flowed out of European equity funds over the past six months, strategists at the U.S. bank said, citing EPFR data. European equity focused ETFs saw net outflows of €5 billion in the first half of 2018, as corporate earnings and economic growth weakened and political risk rose according to Morningstar Direct data. Large-cap equity funds were hardest hit, with the Lyxor Euro Stoxx 50 DR ETF (MSED), iShares Euro Stoxx 50 ETF (EUEA) and iShares MSCI Europe ETF (IMEA) hardest hit.