Europe: Shares hit record high on drop in new virus cases, hopes of China stimulus

[BENGALURU] European shares notched a fresh record high on Wednesday, as a decline in the number of new coronavirus cases and hopes of more stimulus from Beijing helped a recovery from fears of a sustained hit to global supply and demand.

A broad-based rally saw the pan-European Stoxx 600 index end up 0.8 per cent, led by chipmakers that were hit last session by a revenue warning from iPhone maker Apple Inc due the outbreak.

Dialog Semiconductor, STMicroelectronics and AMS AG, were among the top performers on the day.

Lending weight to forecasts that the epidemic might ebb by April, data showed the number of new virus cases in China fell for a second straight day. Rising hopes that China will cut its benchmark lending rate on Thursday to curb damage from the outbreak also lent support.

"It is a question of how quickly China can return to normal," said Andrea Cicione, head of strategy at TS Lombard.

"Daily indications of falling capacity utilisation also seem to be bottoming out and slowly start to pick up."

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But the number of companies that forecast a hit to business from the outbreak continued to increase.

Sportswear retailers Adidas and Puma, which make almost a third of their sales in Asia, said their business was being hurt by store closures in China and fewer Chinese tourists shopping in other markets due to the epidemic.

Still, European shares have gained more than 4 per cent since mid January when the outbreak started to squeeze markets. Analysts ascribe this partly to hopes that the damage might be temporary as pent-up demand might see a bumper second quarter should the outbreak be contained.

"As long as markets take the view that these disruptions do not alter the growth trajectory for macro and earnings growth, there is no need to react to the news flow," said TS Lombard's Cicione.

Puma's strong fourth quarter saw it top the Stoxx 600, despite the warning, and pull up Adidas. Other luxury stocks also rallied, with LVMH and Gucci-owner Kering rose 2.5 per cent and 3 per cent respectively.

Commodity-linked stocks and the auto sector - Tuesday's biggest casualties - also recovered. China being the biggest consumer of iron ore, and the virus epicentre of Hubei being an auto manufacturing hub have seen both these sectors whipsaw since the outbreak.

London's FTSE rose 1 per cent as a weak pound spurred a rally in its internationally focused blue-chips. Data showing an unexpected surge in UK inflation in January had knocked the currency.

All eyes will now be on a flash reading of the Purchasing Managers' Index (PMI) for the euro zone due Friday, to gain more insights into the economic fallout from the outbreak.

Italy's main index rose 1 per cent, adding to Tuesday's gains and end at its highest since August 2008 on hopes of further consolidation amog the country's banks after Intesa Sanpaolo's 4.86 billion euro bid for UBI Banca.

REUTERS