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Weaker euro, stronger growth lift European shares
August 17, 2017
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LONDON: European shares were on track for their best week since late April on Wednesday, gaining almost 1 per cent on forecast-beating growth data, rising metals prices and a weakening euro.

US stocks were also set to open some 0.2 percnt higher, index futures suggested, Metals markets were buoyant, with the price of zinc, used to galvanise steel, hitting its highest in a decade on Chinese infrastructure demand and boosting mining company shares.

The pan-European STOXX 600 index rose 0.8 per cent, led by basic resources companies and energy firms, building further on Monday’s 1.1 per cent rise as European equities recovered from their worst week this year triggered by a nuclear standoff between the United States and North Korea However, with tensions over the Korean peninsula waning, helping lift Asian shares in the past two days, investors have re-focused on fundamentals.

Data on Wednesday showed the eurozone economy expanded by more than previously forecast in the second quarter, compared with the same period last year, while annual growth in Italy was at its fastest since 2011.

Stronger economic growth is part of the reason global active funds remain overwhelmingly positive on European equities, the biggest consensus overweight position according to Barclays’ analysis of investor flows.

“The market mindset is that Europe is recovering from a very deep, very long recession that hit at its financial core,” said Christopher Peel, chief investment officer at Tavistock Wealth.

The fall in the euro against the dollar would also be a boon to European companies, making their exports cheaper and potentially lifting earnings.

BlackRock, the world’s biggest asset manager, warned in a note earlier this week that a stronger euro could slow the pace of earnings growth, adding that the ratio of earnings estimates upgrades to downgrades in Europe had fallen to a one-year low.

The euro is the best performing major currency versus the dollar this year - up 11.5 per cent so far. However, it took a hit on Wednesday after a Reuters report that European Central Bank chief Mario Draghi would not use next week’s annual gathering of central bankers in Jackson Hoel, Wyoming, to signal policy changes.

The report, citing two sources familiar with the situation, dashed expectations that Draghi would begin to chart a course out of the ECB’s massive stimulus programme.

The euro fell as low as $1.1691 and was last down 0.3 per cent on the day at $1.1703, some 2 per cent below a 2 1/2-year peak of $1.1911 touched earlier this month.

The dollar rose 0.1 per cent against a basket of currencies, holding most of Tuesday’s gains chalked up on the biggest rise in US retail sales in seven months.

Reuters

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