Europe close: Stocks end off their best levels of the day
European equity markets edged higher, underpinned by strength in the basic resources and oil and gas sectors, as investors shrugged off disappointing factory data from Germany and Spain and ahead of the release of the latest FOMC minutes tomorrow.
The benchmark Stoxx Europe 600 index finished 0.14% higher, France’s CAC 40 was up by the same percentage and Germany’s DAX by another 0.68%.
Front month Brent crude futures ended the session 0.49% lower at $49.35 a barrel.
Oil prices surged on Tuesday after the US Energy Information Administration estimated that crude production was likely to continue to decline through next August.
Analysts at Credit Suisse and SocGen contributed to the better tone in the commodities space, telling clients they expected to see a stabilisation in prices.
On the downside, though, airline stocks such as Easyjet, Ryanair, IAG and Deutsche Lufthansa were under the cosh as higher oil prices drive up fuel costs and following a downgrade of the sector by Credit Suisse.
“The weakness in the US dollar can in some ways explain some of the current upside, both in equities and most importantly commodities,” said Brenda Kelly, head analyst at London Capital Group.
“The Fed’s failure to act in September and the weaker than expected jobs numbers last week have essentially pushed expectations for a rate hike to at least the end of the first quarter in 2016 and even then it’s precarious given the poor first quarter GDP growth we’ve come to expect from the US on the basis of bad weather.”
Miners also got a lift from a bullish note by Morgan Stanley, which upgraded its stance on Rio Tinto, BHP Billiton and Anglo American as it lifted its view on the European metals and mining sector to ‘attractive’ from ‘in line’.
As far as the sector as a whole is concerned, the broker said stable data from China in the last few months with a potential uplift from recent financial and administrative stimulus policies should increase conviction that the 19% commodity price uplift by 2017 in the bank’s base case deck is achievable.
On the corporate front, SABMiller rose after it said Anheuser-Busch InBev was “very substantially undervaluing” the London-listed brewer with its latest offer of £42.15 per share.
Volkswagen shares pushed higher after chief executive Matthias Mueller said in an interview with a German newspaper that the company would launch a recall for cars affected by its diesel emissions crisis in January and complete the fix by the end of next year.
Supermarket retailer Tesco reversed early losses to trade a little higher. Although it posted a 55% drop in first-half operating profit, the figure still came in above analysts’ expectations.
Brewer Diageo nudged lower after saying it has sold its interests in Desnoes & Geddes and Guinness Anchor Berhad to Heineken NV and bought additional shares in Guinness Ghana Breweries.
Shares in retailer Marks & Spencer fell after JPMorgan Cazenove downgraded the stock to ‘neutral’ from ‘overweight’.
Figures released before the start of the session by the Economy Ministry showed German industrial production unexpectedly fell in August, at its fastest pace in a year. Output dropped 1.2% month-on-month after a revised 1.2% increase in July and against expectations for a small increase.
Factory output in Spain dropped 1.7% over the month in August.
“Overall, the latest data support our view that the euro-zone recovery is unlikely to gain pace in the coming quarters, implying that inflation will remain very weak,” Capital Economics said in a research report sent to clients.