Europe close: Stocks finish on a high note
By Alexander Bueso
Date: Friday 23 Feb 2018
(ShareCast News) - Stocks ended the week on a high note amid possible signs that rate-setters in the States weren't pushing for much quicker pace of rate hikes than markets had already discounted.
Critically, in its semi-annual monetary policy report to Congress, released on Friday, the Federal Reserve stuck to its view that in 2018 consumer prices were likely to remain at or beneath their 2% target, indicating that labour cost growth was not excessively rapid.
Nevertheless, the mood was very clearly cautious.
Indeed, as strategists at Bank of America-Merrill Lynch pointed out, $13.2bn of inflows into equities over the past week, reflecting a higher growth/higher rates backdrop, had not been reflected in the direction of flows into other asset classes.
"[...] inflows to deflationary winners of tech, investment grade bonds, emerging market bonds/equities continues," they said.
BofA-ML also pointed out to clients the recent inverse correlation between the US dollar and Treasury bond yields, a rarity which had only been observed less than 10% of the time over the past half century.
And when it had occurred, they said in the same research report sent to clients, it had coincided with "bouts of inflation and/or market volatility [...] on average inflation rose 2 percentage points, equities fell 9% and volatility rose 22 percentage points; higher wages remains the obvious risk to investors; higher wages & peak profits/growth much less anticipated."
Against that backdrop, by the closing bell the benchmark Stoxx 600 was ahead by 0.22% or 0.82 points to 381.16, alongside a rise of 0.18% or 21.88 points in the Dax and an advance of 0.93% or 208.64 points to 22,672.15 for the FTSE Mibtel.
Meanwhile, euro/dollar was trading lower by 0.30% at 1.2292.
On the macroeconomic front, Eurostat confirmed that the rate of increase in consumer prices within the single currency bloc slipped from a 1.4% year-on-year pace to 1.3%.
Shortly beforehand, Germany's Ministry of Finance reported that the expansion in the country's gross domestic product slowed from the 0.8% quarter-on-quarter pace observed in the third quarter to 0.6%, as expected.
St.Gobain stock was higher as the construction products and innovative materials manufacturer posted a 16.7% jump in recurring net income to reach €1.63bn.
French auto parts supplier Valeo on the other hand skidded lower after reporting a 24% drop in net income to €380m on the back of negative exchange rate effects and from the impact of higher raw materials prices.
In Spain, all eyes were on Inditex, until recently that market's largest company in terms of market capitalisation, with shares moving sharply lower as analysts at Citi and JP Morgan slashed their target prices on the stock ahead of its 14 March full-year numbers, sending shares 6.36% lower to €25.19.
Citi cut its target to €36.50, saying "we forecast gross margin -120bp due to the FX pressure and the launch of the Spring/Summer collection in January."
To take note of, Swedish rival H&M had also come under severe pressure of late amid reports that short-sellers had amassed significant positions in its shares.
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