Europe: Trade deal optimism boosts shares as exporters rally

[MILAN] European shares rose on Wednesday, driven by the export-oriented autos and tech sectors, as optimism grew that the United States and China could avoid a full-blown trade war that would worsen the slowdown in the global economy.

The pan-European Stoxx 600 hit a three-week high in early deals before trimming gains to close 0.5 per cent higher. Britain's FTSE 100 touched a five-week high, ending the day up 0.7 per cent, and Germany's DAX rose 0.8 per cent.

"My scenario is that of an economic slowdown but I expect things to get gradually better following a brutal 2018 dominated by tariffs and very harsh commercial rhetoric," said Roberto Lottici, fund manager at Italy's Banca Ifigest.

Chinese and US teams ended trade talks in Beijing on Wednesday after an extension.

But the US trade representative's statement underwhelmed investors, sending stocks to a session low.

The USTR office said China pledged to purchase "a substantial amount" of agricultural, energy and manufactured goods and services from the United States.

European equities recorded their worst year in a decade in 2018 but so far this year they are up three percent. A trade deal could make investors more upbeat over company earnings as the fourth quarter earnings season gets under way.

"From a technical standpoint, we do think the market was looking very very oversold as of two weeks ago which was giving a fairly good buy signal and I think that's what's happening now," said Emmanuel Cau, head of European equity strategy at Barclays.

Autos rose 2.4 per cent, making them the biggest sectoral gainer. Shares in Daimler and BMW, which both produce cars in the United States for the Chinese market, rose 3 and 1 per cent respectively.

Fiat Chrysler added 2.9 per cent after a Reuters report said the Italian-American carmaker was nearing a settlement to resolve US allegations in a diesel emission case.

Car parts makers Faurecia and Valeo also climbed 6.4 and 5.8 per cent.

Tech stocks gained 2.2 per cent as the upbeat mood around trade helped investors shrug off reports that US tech giant Apple had cut planned first-quarter production for its three new iPhones.

The sector had already fallen sharply last week on the back of Apple's first sales warning since the iPhone launch in 2007. A senior White House adviser said last week Apple sales should recover once Washington strikes a trade deal with Beijing.

Spain's IBEX lagged peers, ending the day down 0.3 per cent.

Telefonica was a big weight, down 1.8 per cent after Costa Rican authorities raided the offices of two of its subsidiaries as part of an investigation into alleged tax fraud of at least US$2 million.

Also falling was German telecoms firm 1&1 Drillisch, down 6.5 per cent after Macquarie cut their rating on the stock to "neutral".

"1&1 Drillisch may enter the German spectrum and capex spend cycle with an uncertain returns outlook," analysts at the Australian bank wrote.

Dealmaking moved some shares.

French appliances firm SEB shot up 10 per cent to the top of the Stoxx after it acquired US-based coffee equipment maker Wilbur Curtis, with analysts saying the professional coffee machine segment was enjoying high profitability.

Italian peer DeLonghi was up 3.5 per cent.

Elsewhere the focus was on earnings updates.

TGS shares hovered around flat after the Oslo-listed seismic surveyor posted a smaller-than-expected increase in quarterly revenues and cautioned on exploration spending this year.

Britain's No.3 housebuilder Taylor Wimpey jumped 6.2 per cent after saying indicators for 2019 sales were solid.

Overall, fourth-quarter earnings for Europe are expected to have risen 7.1 per cent on revenues up 4.5 per cent, according to Refinitiv data.

REUTERS