LONDON: European shares extended their low-volume bounce into a second day, led by demand for defensive stocks and investor hopes for a further easing of U.S. monetary policy, although tepid economic data did little to allay fears of recession.
Blue-chip drugmaker Novatis added most points to the index, joined by others with dividend attractions such as Roche, while telecoms heavyweight Deutsche Telekom was among the top gainers, up 4.8 percent.
“I’ve seen some real buying of defensives today – pharmaceuticals, tobaccos. Some accounts are facing the reality that we’re going to have a sharp fall in earnings next year,” a sales trader at a European investment bank said.
“The market is pricing in about a 20 percent drop in earnings next year, which is kind of like a normal recession,” the trader said.
Thomson Reuters I/B/E/S data shows earnings momentum – analysts’ upgrades minus downgrades as a percentage of total estimates – for the STOXX Europe 600 companies is minus 11.88 percent from minus 6.8 percent a month ago.
The index’s intraday journey, however, showed a marked lack of conviction among bulls, with volatile trade once again the name of the game and the FTSEurofirst 300 moved in a 23 point range over the session.
HSBC Flash China Manufacturing purchasing manager data had earlier pointed to just a slight cooling in the Asian powerhouse’s growth, buoying miners, although lacklustre eurozone data and a weak reading of German investor sentiment then triggered a slide off the high.
Weak U.S. new-home sales data compounded the move to lead a brief dip into the red although subsequent gains across the Atlantic helped the index close up 0.8 percent at 923.87 points in volume at 88 percent of its 90-day daily average.
“What we’re seeing now is something of a ‘dead-cat bounce,’ with not a lot of volume going through the market. It could take another couple of weeks before people are back from holiday and making views,” Neil Dwane, chief investment officer Europe at RCM, said.
The market has risen 1.6 percent this week, although it remains down 14.7 percent in August and on course to post its worst-ever monthly drop.
Hopes from some of fresh monetary stimulus measures from the United States, ahead of a speech from Federal Reserve Chairman Ben Bernanke Friday, lent some support to markets on both sides of the Atlantic.
However, “there’s a real risk he doesn’t come out with anything and the market sells off further,” said RCM’s Dwane, who oversees around 2.8 billion euros in assets.
Possible equity bets on any third round of quantitative easing could include miners, many of whom have been sold off heavily in recent months, said Robert Quinn, chief European equity strategist at Standard & Poor’s.
Although “it is still experimental policy making,” said Quinn, “no one can say with conviction that these are the guaranteed consequences.”
While the broader market eked out a fresh gain, peripheral stock indexes ended the day in the red, led by Italy’s blue-chip FTSE MIB with a fall of 1 percent, weighed by a fresh bout of concern over the region’s banking stocks.
National Bank of Greece, Mediobanca and Banco Popolare were among the worst hit regional banks, down up to 9 percent after several credit indices hit record wides.