Europe midday: Stocks edge higher as some investors embrace the irrational
By Alexander Bueso
Date: Friday 22 Feb 2019
(Sharecast News) - Stocks on the Continent are modestly higher as investors wait, and hope, for positive news out of trade talks between the US and China in Washington, while equity strategists debate the pros and cons of being in the market.
So while there was caution in the air, some strategists believed that might in fact be a good thing.
Running clients through the latest new-flow, CMC Markets UK's Michael Hewson said: "One week to go until the 1st March China, US trade deadline and we don't appear any closer to finding out whether it will be extended. That still seems to be the most likely outcome given some of the smoke signals coming from recent discussions, as well as all the chatter over various memoranda."
On that note, earlier it was reported that the US President might meet with China's top trade negotiator later on Friday, which might pave the way for an extension to the US deadline for making progress in talks or otherwise increasing its tariffs yet again.
For their part, strategists at Morgan Stanley were pointing out to clients that European markets looked "tactically overbought and under-owned" with EU hedge funds conspicuously unrepresented in the recent rally.
And yet, for strategists at Bank of America-Merrill Lynch, there were times when it could pay to be "irrational" - as at present.
"Today's contrarian is to be long the irrational...stay long in anticipation of green shoots & "greed" via inflation plays such as commodities, Europe & Japan, value stocks, and cheap cyclicals; we say be an irrational contrarian," they said to clients.
As of 1404 GMT, the benchmark Stoxx 600 was edging up by 0.19% to 371.12, alongside a gain of 0.44% to 11,474.15 for the German Dax, while the Cac-40 was ahead by 0.30% and trading at 5,211.85.
From a sector standpoint, gains on the Stoxx 600 were being led by Basic Resources (1.94%) and Technology (0.99%).
Buoying the former perhaps, in a research note sent to clients, analysts at Danske Bank pointed to a "big jump" in credit in China in January, telling clients it was a sign that official stimulus measures "were kicking in with more force".
"The data added to optimism in the Chinese equity market, which rallied further this week, putting gains at close to 15% this year," the Danish broker said.
In other economic matters, Germany was again in the spotlight after the country's prestigious IFO think tank's business confidence gauge for February printed at a below market forecast level of 98.5 (consensus: 99.0), after a reading of 99.1 for the month before.
Compounding matters, taken at face value, the retreat in a sub-index linked to the services sector appeared to call into question analysts' expectations for a rebound in economic growth on the back of stronger domestic demand.
Despite that, Barclays Research reiterated its forecasts calling for a pick-up in GDP growth to a 0.3% quarter-on-quarter clip in he first three months of 2019 and to a 0.5% pace in the second quarter.
At the pan-European level meanwhile, Eurostat confirmed a dip in the year-on-year rate of gains in harmonised consumer prices from December's 1.5% to 1.4% last month, even as the so-called 'core' rate of CPI accelerated from 0.9% to 1.1%.
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