European stock rally stalls

Comment on this story
EU Flag

Paris - European shares paused on Wednesday after a two-month rally that propelled a number of indexes to multi-year peaks, as investors awaited confirmation of more stimulus from the ECB before they chased the market higher.

Portuguese stocks sank, with Lisbon's PSI 20 falling 1.8 percent.

They were led lower by banking stocks after a report said Millennium bcp was considering a capital increase to speed up repayment to the state of its contingent convertible bonds, or CoCos.

A spokesman for the bank, Portugal's largest private lender, said on Wednesday it has made no decision about a possible capital increase.

Shares in Millennium were down 4.8 percent. Banco Espirito Santo lost 3.4 percent.

The PSI 20 had outperformed broad European indexes in the first four months of the year, rising as much as 19 percent as the Portuguese bond yields dropped and investor confidence in the country improved.

But Portuguese stocks started to fall in mid-April, and the PSI 20 hit a near three-month low on Wednesday.

“It's not the time to play indexes. The 'easy' rally is over,” said David Thebault, head of quantitative sales trading, at Global Equities.

“Investors have to do their homework now, dig into balance sheets and pick the right stocks, not whole countries.”

At 12:25 SA time, the FTSEurofirst 300 index of top European shares was down 0.3 percent at 1,365.12 points, after climbing to a six-year high in the previous session.

Germany's DAX dipped 0.1 percent, hovering below a record high it reached in January.

Shares in Mediaset featured among the biggest losers.

They fell 7 percent after the Italian television company posted a net loss in the first quarter.

Compass gained 5 percent after the world's biggest catering firm said it would return 1 billion pounds ($1.68 billion) to shareholders through a special dividend.

European stocks had been lifted by expectations the European Central Bank would take new steps to keep inflation from staying too low. The FTSEurofirst 300 rose some 7 percent from lows in March.

Last Thursday, ECB President Mario Draghi said the central bank was ready to take action in June to boost the euro zone economy if updated forecasts merited it.

On Wednesday, Reuters reported the bank was preparing a package of policy steps for the June meeting, ranging from rate cuts to measures intended to boost lending to small and mid-size businesses.

“Optimism is very high amid traders that the ECB president perhaps will not only do the talking during his next meeting, but there is a strong possibility of some action, especially now that he has German Bundesbank behind him,” said Naeem Aslam, chief market analyst at AvaTrade, in Dublin.

“The industrial production data released for the euro zone has further cemented the argument that the region is in a desperate need of further easing.”

Data showed on Wednesday euro zone industrial output fell as expected on the month in March and dropped unexpectedly year-on-year.

A number of traders said the recent rally could run out of steam as investors look for an opportunity to cash in on that rise. Peripheral euro zone markets, including Italy and Portugal, are already seeing a round of profit taking this week after outperforming since the start of the year.

“For me, it's overdone here, and there's a pullback coming,” said Darren Courtney-Cook, head of trading at Central Markets Investment Management. - Reuters

sign up

Comment Guidelines

  1. Please read our comment guidelines.
  2. Login and register, if you haven’ t already.
  3. Write your comment in the block below and click (Post As)
  4. Has a comment offended you? Hover your mouse over the comment and wait until a small triangle appears on the right-hand side. Click triangle () and select "Flag as inappropriate". Our moderators will take action if need be.

  5. Verified email addresses: All users on Independent Media news sites are now required to have a verified email address before being allowed to comment on articles. You are only required to verify your email address once to have full access to commenting on articles. For more information please read our comment guidelines