08 Jan Europe Markets: European stocks finish at 2½-year high
European stocks on Monday closed at a 2½-year high partially buoyed by gains in German shares despite downbeat data from Europe’s largest economy.
What are markets doing: The Stoxx Europe 600 index SXXP, +0.27% tacked on 0.3% to end at 398.41, scoring its best close since July 2015, according to FactSet data. The gauge on Friday finished at its highest since August 2015, leading to last week’s rise of 2.1%.
Germany’s DAX 30 index DAX, +0.36% rose 0.4% to finish at 13,367.78, holding near a two-month high. France’s CAC 40 PX1, +0.30% picked up 0.3% to close at 5,487.42, also at its highest since early November.
The euro EURUSD, -0.4987% slipped to $1.1979 from $1.2032 late Friday in New York.
What’s driving the market: European stocks continued to march higher as the global equity rally hasn’t shown major signs of fatigue at the start of this year.
“The opening strength tracks small gain in Asia, where markets were unperturbed by reports from China that the PBOC think “there is room for an increase in interest rates in the short term,” said Jasper Lawler, head of research at London Capital Group, in a note. PBOC refers to the People’s Bank of China, the country’s central bank.
“With the macro backdrop looking supportive, focus is turning to earnings,” with Wells Fargo and J.P. Morgan set to unofficially kick off earnings season on Friday, said Lawler. “Markets have been pricing in a short-term jolt to bank earnings from tax reform. A reduction in the value of deferred tax assets, essentially credits for old losses will hurt bank earnings in Q4.”
German stocks advanced even as manufacturing orders unexpectedly fell 0.4% month-over-month in November.
What strategists are saying: “Today’s drop in new orders should not ruin the current German growth party. In fact, the decrease comes after three consecutive increases and is rather of a technical nature than any sign of weakness. With inventories low and capacity utilization at its highest level since 2008, there is little reason to get concerned. The general trend for industrial production in Germany remains positive,” said Carsten Brzeski, ING’s chief economist covering Germany and Austria, in a note.
“Having got off to such a positive start in 2018 and with economic data continuing to look reasonably resilient despite a fairly average U.S. jobs report [on Friday], investors continue to appear to be happy to push this bull market even higher, despite some misgivings that, particularly in the case of U.S. markets valuations remain stretched,” said Michael Hewson, chief market analyst at CMC Markets UK, in a note.
Corporates: Micro Focus International PLC shares MCRO, -16.92% fell 17% after the software maker said six-month revenue fell on constant-currency terms and a key profit metric, adjusted Ebitda, was lower by 4.1% “as we put operational improvement plans on hold while working on the completion of the HPE Software transaction.” The company acquired Hewlett Packard Enterprise Co.’s HPE, -2.66% software business for $8.8 billion last year.
Micro Focus also expects a decline in revenue for the year ending Oct. 31, 2018, and said Chief Financial Officer Mike Phillips will move to a new role of director of mergers and acquisitions.
Denmark’s Novo Nordisk A/S NOVOB, +0.41% said Belgian biopharmaceutical company Ablynx NV ABLX, +45.28% ABLX, +45.12% rejected its 2.6 billion-euro takeover bid and declined to engage in any discussions on the approach. Novo Nordisk shares were up 0.4% and Belgian-listed shares of Ablynx soared 45%, according to FactSet data.
Deutsche Lufthansa AG LHA, +1.64% rose 1% after the air carrier backed its fourth-quarter outlook. The company also said it expects additional fuel costs of about 700 million euros in 2018, according to Dow Jones Newswires.
Deutsche Bank AG shares DBK, -1.15% fell 1%, extending Friday’s slide of 5.2% after the German lender said recent U.S. tax reforms will lead it to book a charge of about 1.5 billion euros ($1.81 billion) in its fourth-quarter results.