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European shares rebound after Chinese data

Jul 13 2012 11:20 Reuters

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London - Mining companies led a bounce in European equities on Friday, having fallen in the previous session, as growth data from China proved no worse than feared but weak enough to keep alive hopes for more official stimulus for the economy.

Worries the Chinese figures, released overnight, would be worse than forecasts have been central to falls in stock markets this week and miners benefit more than most from any more hopeful signs from the world's biggest metals consumer.

Gold miner Petropavlovsk and steelmaker Voestalpine were among the early leaders with 1.8% and 1.3% gains respectively. The overall FTSEurofirst 300 rose some 4.31 points to 1,033.13, having shed 1% on Thursday.

"Given the fall we had yesterday it looks like most had positioned themselves for worse, so given we got 7.6% (growth from China) it is a positive," a London-based trader said.

Still, the China growth was the slowest since the January-March quarter of 2009 and the sixth consecutive quarter of slower growth, fuelling hopes of more moves to stimulate the world's second largest economy.

"China has enough room for stimulation now and that is important for equity markets," Achim Matzke, European stock indexes analyst at Commerzbank, said. "China's consumer price index and producer price index is coming down so that gives room for interest rate reduction and that is more important for equity markets going forward."

Banks bucked the broader bullish trend with Italian banks such as Unicredit and Intesa Sanpaolo down more than 1%, after Moody's surprised markets by downgrading Italy's government bond rating by two notches to Baa2 and warned it could cut it further.

That threatens the success of a 5.25bn bond sale by Italy later on Friday and there was also data showing foreign deposits at Italian banks fell 20% on the year in April.

U.S. peer JPMorgan is the latest major lender to unveil its second-quarter results around midday. While the eurozone crisis and other macro news has dominated recent trade, the earnings season in Europe has enjoyed a bullish start.

Of the 3% of the companies to have reported earnings in Europe so far this quarter 88% have either beaten or met expectations with a reported surprise of 23.4%, although the expectation for the entire period are for earnings to contract by around 9%, according to Thomson Reuters Starmine data.

British credit information company Experian, however, was among the top fallers, down 2% after traders were disappointed by its first-quarter statement.

Analysts at Exane BNP Paribas expected equities to be driven by "cyclical" stocks like miners whose results are most sensitive to a changing economic outlook and policymakers' efforts to restore growth in Europe.

"If we're right, it wouldn't be the first time that policy catalysts have overshadowed weak earnings trends: last cycle we saw cyclical (stocks) relative prices trough in November 2008 but earnings momentum trough in August 2009," Graham Bishop, said senior equity strategist at Exane BNP Paribas.

The FTSEurofirst is likely to remain stuck in its current range, between the 50% and 61.8% retracement of the fall between March and June, as Europe's debt crisis continues to weigh on shares.

*Follow how China's growth numbers ripples across world economies on Fin24's Facebook, Twitter and Google+  pages.

european shares  |  markets  |  china economy  |  mining
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