European Stocks Power Into New Year on Strength of Manufacturers

Barty: Markets Need Earnings to Fuel Growth in 2017

European stocks advanced in the first trading day of 2017, carrying forward their surge from December as Italy’s better-than-expected economic data added to evidence of stronger manufacturing in the region.

The Euro Stoxx 50 index gained 0.6 percent on Monday, with the U.K. and Swiss markets closed for holidays. That kept the benchmark in overbought territory, as measured by the relative-strength index, for a 12th day, matching the longest run at that level this century. In Germany, the region’s biggest economy, the DAX index jumped 1 percent in its best day since mid-December.

  • Italy’s FTSE MIB leaped 1.7 percent Monday. Data showed the country’s manufacturing PMI rose to 53.2 for December versus 52.2 in November, while economists expected 52.3. The FTSE MIB had ended 2016 down 10 percent, hurt by political uncertainties as well as investor concern over the strength of the country’s banking system.
  • For Stephane Barbier de la Serre, a strategist at Makor Capital Markets in Geneva, the consensus for Europe’s economic growth this year remains very cautious, which means any positive surprises in macroeconomic data may spur further gains in stocks.
  • “There’s a lack of commitment and conviction,” de la Serre said. “Most institutional investors are still underweight European equities, betting on a pull-back after the rally of the past few weeks, so we could see a bear trap in the first weeks of the year.”
  • German shares were led by gains in lender Commerzbank AG and carmaker Volkswagen AG. A report showed manufacturing PMI reached 55.6 in December, the highest reading since January 2014.
  • Euro-area manufacturing expanded last month at the fastest rate since April 2011, in a sign that the currency bloc’s recovery was intact heading into 2017.
  • The broader Stoxx Europe 600 Index climbed 0.5 percent, after slipping 1.2 percent in 2016, when it underperformed the S&P 500 index. The U.S. benchmark gained 9.5 percent from 2015. U.S. markets were closed on Monday.
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