Europe: Shares end January lower as Trump rally fades

[MILAN] European shares ended January marginally lower after falling to a one-week low on Tuesday, as investors turned more realistic about US President Donald Trump's policies, even though solid economic data bolstered prospects for the region's equities.

After rising in December and November in anticipation of a big fiscal stimulus under the new US administration, the pan-European Stoxx 600 index ended January down 0.4 per cent, as those expectations faded, overshadowed by Mr Trump's controversial and protectionist policies.

"The Trump reflation story came in with a lot of hype but actually when he came in we're seeing a much more dislocated agenda and the outlook for some of the more bold fiscal-focused plans seems to be much more complex than expected," said Peter Rosenstreich, head of market strategy at Swissquote Bank.

After a volatile day on Tuesday, the Stoxx fell 0.7 per cent to a one week low. The index fell 1.1 per cent in the previous session, marking its biggest one-day loss since before Mr Trump won the US election in early November.

In spite of the poor end to the month some investors including Swissquote's Rosenstreich said they remained bullish about prospects for European equities, as signs of an economic recovery in the region were gaining momentum.

Data on Tuesday showed euro zone inflation had risen to just below the European Central Bank's target, economic growth was accelerating at greater speed than in the United States, and unemployment has hit a more than seven-year low.

"While you're having this noise of Trump, Brexit and political instability you have quietly a European economic recovery: the GDP numbers today were strong, inflation continues to pick up," Mr Rosenstreich said.

"On a valuation basis we believe that European stocks should outperform US stocks."

Credit Suisse lifted on Tuesday its year-end target for the Euro Stoxx 50 index to 3,450 from 3,300 points. Strategists at Swiss investment bank cited earnings prospects, attractive valuations and solid growth, noting how the ECB was likley to remain dovish until at least the aftermath of the French elections in the spring.

Alfa Laval, which has been under pressure from low demand in the oil, gas and marine sectors, advanced 6.9 per cent after posting a fourth-quarter order intake and core profit ahead of analyst forecasts.

Ocado rose 2 per cent after reporting a 3.3 per cent rise in full-year core earnings and saying that it was well positioned for growth.

Other company updates disappointed, however.

UPM-Kymmene slumped 12.2 per cent, the biggest faller in the Stoxx 600 after the Finnish pulp and paper maker gave a cautious outlook for this year.

According to Thomson Reuters data, the fourth-quarter results season is looking promising overall, with earnings of companies in the Stoxx Europe 600 collectively seen rising by more than 11 per cent from a year ago, following a recovery in economic growth and a pick-up in inflation.

Rig firm Seadrill slumped 28 per cent and headed for its biggest daily fall since early 2016 after saying that talks to restructure its US$8 billion debt had taken longer than expected.

REUTERS