European shares fall to near 3-week lows

Published Dec 3, 2013

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London - European stocks dipped to near three-week lows on Tuesday, with miners tracking a fall in metals prices after strong US data heightened concern the Federal Reserve will scale back stimulus sooner rather than later.

Chilean miner Antofagasta dropped 5.5 percent as copper prices fell on concerns of oversupply and after jitters about Fed tapering hit dollar-denominated metals prices.

The dollar rose after a report on Monday showed US factory activity reached a 2 1/2-year high last month.

More production by factories generally means more demand for metals but the prospect of an earlier-than-expected trimming of Fed stimulus is lifting the dollar, making metals more expensive for many investors.

Mexican precious metals miner Fresnillo and Africa-focused miner Randgold were also among the top fallers in Europe, off 3.7 and 3.9 percent respectively.

“We are now back to talking about tapering and what it will mean to the markets ... However, it is dependent on good data, so yes, from a market perspective psychologically you could see a small correction but it won't be as big as what we saw in May,” said Peter Garnry, equity strategist at Saxo Bank, referring to the steep global equities selloff seen when the prospect of tapering was first raised earlier this year.

Signalling a more cautious mood, the VSTOXX index of implied volatility on euro zone blue chips rose 5.9 percent.

It has now gained 18.3 percent over the past three sessions, the biggest such jump in eight weeks.

The FTSEurofirst 300 slipped 1.0 percent to 1,288.05 points by 13:14 SA time, breaking through support around the 10-day moving average, which had acted as a floor on Monday, to hit its lowest levels since mid-November.

The EuroSTOXX 50 euro zone blue-chip index fell 1.1 percent to 3,042.35 points.

Technical and fundamental analysts remained upbeat about the outlook for European equities over the longer term.

“We have a brilliant rally and now we have a little bit of a slowdown, a normal consolidation,” said Petra Kerssenbrock, technical analyst at Commerzbank.

“We have a massive support around 3,000-3,015, but I don't expect it to go that far down.”

On the fundamental side, analysts at Citi and Credit Suisse, among others, highlighted opportunities among European equities in their 2014 outlooks.

Credit Suisse forecast that the EuroSTOXX 50 would finish next year at 3,600 points.

The broad appetite for European equities has seen them enjoying net inflows from US investors for the past 22 weeks, marking the longest streak of weekly inflows since Lipper started to monitor flows in 1992.

“On the index side, a lot of them (US investors) are playing the outperformance of Europe versus S&P through outperformance options,” said Amy Wu, equity derivatives strategist at RBC Capital Markets.

“Investors in general believe that developed Europe - not necessarily periphery - is going to outperform in 2014.” - Reuters

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