Europe close: Stocks end higher, but off their best levels
Somewhat positive news around the ongoing US-China trade talks buoyed shares on Tuesday, helping investors to brush-off the release of very weak readings on German industrial production and euro area business confidence.
In particular, markets were encouraged by Chinese President Xi Jinping's decision to send his top economic advisor, Liu He, to the second round of trade talks and by news that Chinese importers had carried out their third largest purchase ever of US soybeans.
By the end of trading, the pan-European Stoxx 600 index was up by 0.88% or 3.01 points to 345.89, alongside a jump of 1.15% or 54.10 points for the French Cac-40 to 4,773.27, while the FTSE Mibtel added 0.25% or 46.87 points to 19,000.14.
Traders appeared to be somewhat divided regarding the prospects for a US-China trade deal and some economists appeared to echo that caution, with Arend Kapteyn and Pierre Lafourcade at UBS saying: "Unfortunately, things have gotten worse, not better: the DM uptick has disappeared (the US looks stable at around 2.5% but the Eurozone was running close to 0% before the retail sales data), the bounce in Latam is faltering, EMEA is now in outright contraction, and Asia took a leg lower."
On a more constructive note, strategists at Deutsche Bank said they now saw 10% upside for European equities by June.
"Back then, we argued that PMIs were set to roll over, equities to fall, bond yields to drop and cyclicals & financials to underperform," they said.
"This has now played out. 2019 starts as a mirror image of 2018: PMIs have dropped, equities have corrected, bond yields have fallen and defensive sectors have outperformed. Just as early 2018 marked the peak in growth momentum, we think December 2018 was the trough."
Be that as it may, stockmarkets finished off their best levels of the session, following a late afternoon report that Beijing and Washington were not yet ready to reach a deal, although progress had reportedly been made.
On the economics front, according to the German Ministry of Finance, the country's industrial production shrank in November by 1.9% month-to-month, which was well below the consensus projection for an increase of 0.3%.
In year-on-year terms, production fell by -4.7% after a downwardly-revised increase of +0.5% for October. Net revisions to the month-to-month reading were -0.3 percentage points.
"This headline is much worse than we expected [...] We now think production fell 1.4% quarter-on-quarter in Q4, only slightly worse than the 1.7% plunge in Q3," said Claus Vistesen at Pantheon Macroeconomics.
"In other words, the German manufacturing sector was in recession in the second half of 2018, reflecting in part the fact that the industry hit capacity constraints earlier in the year and rising global uncertainty amid the trade conflict between the U.S. and China."
In corporate news, Airbus shares jumped after Reuters reported that the jet manufacturer had "operationally" hit its target for 800 deliveries in 2018.
Morrisons finished in the red even as it reported stronger-than-expected retail sales over the festive period. Investors were pleased with the company’s like-for-like sales growth but disappointed by another relatively weak performance form the core retail arm.
Richard Hunter, head of markets at Interactive Investor, said: "The shares have fallen foul of the wider and weaker market environment, having dipped 14% over the last six months, although over the last year the 2.5% decline in the price compares favourably with the FTSE100, which has dropped 11.5% in the corresponding period."
Shares of Swiss chemicals group Sika AG also declined, after the company's management tabled an offer to purchase mortar and construction materials maker Parex Ltd. for an enterprise value of €2.04bn.
Signify came under selling pressure as well, on the heels of a downgrade to 'neutral' from analysts at Bank of America-Merrill Lynch. Rotork was among the best performing issues after the same same broker upgraded the stock.