Tech exuberance lifts European shares near 2-month highs

The German share price index DAX graph at the stock exchange in Frankfurt
FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, January 18, 2019. REUTERS/Staff

January 25, 2019

By Josephine Mason

LONDON (Reuters) – European shares on Friday hit their highest level in nearly two months as investors flocked to technology stocks after positive U.S. earnings overnight, while news of slowing revenue growth from Vodafone weighed on telecoms.

The pan-European STOXX 600 index was up 0.7 percent at 1030 GMT, on track for its fourth straight weekly gain.

Frankfurt’s DAX was the top performer, while Britain’s exporter-heavy FTSE 100 underperformed as a stronger sterling weighed.

Exuberance for tech stocks continued even after Intel Corp delivered a profit and sales warning after the closing bell, blaming a slowdown in China and sluggish demand for its data center and modem chips.

The sector hit its highest level since Nov. 11.

Investors instead drew comfort from better-than-expected earnings from other U.S. chipmakers earlier in the session: Xilinx Inc, Lam Research Corp and Texas Instruments Inc.

The sector has been hit hard by fears about stagnating smartphone demand and a cooling Chinese economy after sales warnings from Apple, Samsung and Taiwan Semiconductor earlier this month.

This week, though, investors have pounced every morsel of good news – chipmaker STMicro’s gloomy near-term guidance was ignored on Thursday in favor of its outlook for a strong second half.

“So much of the bad is priced in,” said Mike van Dulken, analyst at Accendo Markets.

The market was also bracing for key events next week.

The Federal Reserve’s meeting on Wednesday will be closely watched for signs the U.S. central bank will delay its steady rate-hike cycle, while Washington and Beijing will hold the next round of talks aimed at ending their festering trade spat.

The negotiations come as a March 1 deadline to resolve the dispute looms. The chances of a truce are low though, with both sides divided over major issues like China’s protection of its intellectual property.

“We’ve got a month until the deadline and it’s probably going to go down to the wire. The markets will be up and down until then on the soundbites from both sides,” said van Dulken.

Closer to home, data highlighted the deteriorating health of the euro zone. On Friday, a key German business morale indicator fell for the fifth straight month in January, while the European Central Bank’s (ECB) own survey of professional forecasters pointed to sharply lower growth and inflation.

ECB President Mario Draghi warned on Thursday that a dip in the 19-member euro zone’s economy could be deeper and longer than thought even a few weeks ago.

Car makers and parts suppliers, which are sensitive to trade frictions and the health of the Chinese economy, were the strongest performers, hitting Dec. 3 highs.

Mining and oil stocks also gained.

Telecoms were one of only two sectors in the red after disappointing results from Vodafone and Nordic telecom group Telia.

Vodafone was down 2.3 percent, hitting its lowest in nearly nine years after the world’s second-largest mobile operator said revenue growth slowed in the third quarter due to ongoing price competition in Spain and Italy and a slowdown in South Africa.

The stock was knocked hard on Thursday after its South African unit issued disappointing results.

Telia was down 3.5 percent, at the bottom of the STOXX 600 after its weaker-than-expected results, while Ericsson rose 2.6 percent after the mobile telecoms equipment company beat fourth-quarter forecasts thanks to growing demand for next-generation 5G gear.

The news will likely underscore expectations the Swedish company could be well placed to benefit from current turmoil surrounding market leader Huawei.

Fragrance and flavor maker Givaudan was not far behind, falling 3.4 percent after it said its weaker-than-expected net income in 2018 was hit by higher financing costs and foreign currency losses.

(Reporting by Josephine Mason; Editing by Gareth Jones and Andrew Cawthorne)

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