Europe’s top shares closed at 13-month highs on Friday, extending their longest weekly winning streak in seven years on hopes policy makers were inching closer to concerted action to tackle the region’s debt crisis.
A late boost from upbeat economic data from the United States pushed the FTSEurofirst 300 index to 1,110.16 points, its highest since July 2011 and up half a percent on the day.
Spain’s Ibex 35 and Italy’s MIB led local market gains, up 1.9 and 1.3 percent after German Chancellor Angela Merkel voiced support for European Central Bank chief Mario Draghi’s promise to do all it took to defend the euro.
Draghi has put forward plans for the bank and the euro zone’s rescue fund to buy government bonds to bring down the borrowing costs of debt-laden countries; markets are on tenterhooks as to whether Merkel will agree to the scheme next month. “The political discussion has become stronger and more constructive,” Francesco Curto, head of the CROCI investment strategy & valuation group at Deutsche Bank, said.
“We know that we are going to get a recession but we’re not going to get a disorderly adjustment in Europe. This is the view that the market is taking.” The U.S. Conference Board said on Friday its Leading Economic Index climbed 0.4 percent to 95.8, beating analyst estimates for a 0.2 percent rise. The preliminary reading of the index on consumer sentiment rose to 73.6 from 72.3 last month, topping economists’ forecasts for a slight uptick to 72.4.
The FTSEurofirst 300 index is up about 9 percent since late July when Draghi said the ECB was ready to do whatever it takes to preserve the euro. This week was its eleventh consecutive weekly gain, matching the longest winning run in 2005.
Traders said August’s low volumes had magnified the move up and warned investors may await concrete steps from policy makers before committing more money to the rally.
The ECB holds a monthly policy meeting on Sept 6, when it could spell out exactly how it could intervene in the bond market if asked. Six days later, Germany’s constitutional court will deliver a ruling on the euro zone’s permanent ESM rescue fund before which Berlin cannot ratify it.
“This has been a short covering rally and people now want to see the actual money on the table,” a Milan-based broker said.
ITALIAN BANK SHORTS: Shares in Italy’s No. 3 lender, struggling Banca Monte dei Paschi di Siena, rose 17.6 percent after remarks by its chairman that its main shareholder should sell down more of its stake.
The move was likely fuelled by players closing losing bets on the shares falling, given that the bank had 5.4 percent of its shares out on loan, or 64 percent of those available to be borrowed, as of the close on Thursday, making it the stock with the highest utilitisation rate among Italian blue chips. The euro zone’s blue chip Euro STOXX 50 index rose 0.6 percent to 2,471.53 points, showing technical strength after breaking out of a consolidation range between 2,405 and 2,440 that had trapped the gauge since last week, hourly charts showed.
“The upside breakout of the upper end of range at 2,450 have opened the way to further advance towards 2,494, the March 23 low.” Nicolas Suiffet, a technical analyst with Trading Central in Paris said.
“From a chartist point of view, the validation of a classical flag pattern has reinstated a positive bias (and) although intraday momentum oscillators are highly overbought, a continuation of the rise is more likely.”
He cautioned that a breach of the 2,433 support, while not invalidating the short-term bullish sentiment, could see consolidation towards 2,376, the Aug 2 high.
