A strong week for the European equity markets

Friday, January 17, 2014

European equity markets rebounded higher on Friday, as strong economic data from the UK and the US boosted market sentiment. However, fairly modest corporate earnings results from GE, Morgan Stanley and Intel limited strong gains.

CAC, DAX and the London benchmark index gained more than 0.2%, while the euro came under further pressure against the US dollar, with the USD index trading above 81.0 area continuing its strong rally.  

On the macroeconomic front, UK retail sales surprised the London equity market after surging by 2.6% in December compared to 0.3% in November, beating estimates of 0.4% increase. The robust retail figures showed the UK consumption is recovering strongly.

In addition, Chancellor George Osborne said that he wants the national minimum wage to increase to around GBP7.00/per hour, showing an above-inflation increase, in a move that has been welcomed by both unions and charity groups, arguing that the country “can afford it”.

In the US, housing starts rose to 999,000 in December, above expectations of 985,000. Industrial production rose by 0.3% in December in line with expectations, while capacity utilisation increased to 79.2% in the same period beating expectation. Nevertheless, the results from the University of Michigan/Thomson Reuters survey were fairly mixed.

In London, mining stocks helped the index to end on the positive territory. Glencore, Antofagasta, Randgold, Rio Tinto and BHP Billiton climbed higher between 1.45% and 3.35%. The insurance company Admiral Group was the top performing stock in London today after surging 6.1% as data showed a multi-year decline in car insurance prices is slowing, with prospect the car insurance price war is easing.

Retail companies like Sainsbury’s and Marks & Spencer also gained by 2.08% and 1.78%, respectively, supported by the strong retail sales data in the UK.

To summarise, the European equity markets managed to end on positive territory showing their best weekly gain this year so far. We expect the recent upside momentum to continue in the short-term, supported by robust economic data and increased risk appetite. However, corporate earnings results could also add some direction to the markets.   

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