European equity markets extended the recent good run which has seen the FTSE Eurotop 300 bounce from its 2004 low recorded last Monday.
Among the main driving forces behind yesterday’s strong showing, which drove the index up a further 1.4 per cent to 964.65, was a downturn in crude oil prices.
The extent of the strength in Europe’s stock market was demonstrated by the absence of any losing sectors throughout the trading session, although there were plenty of individual stocks in negative territory.
Among these was Germany’s Merck, the drugs and chemicals group whose shares retreated 3.1 per cent to €42.03 amid concerns that prices of liquid crystals, one of Merck’s main profit centres, could come under pressure in the second half because of oversupply.
Also on the slide were shares in H. Lundbeck, the Danish drugs group, whose stock price fell 3 per cent to SKr106.50 after Morgan Stanley downgraded the company to “underweight” from the previous “equal weight”.
The broker cited the lack of a positive newsflow until spring 2005 for the downgrade. “In order for consensus expectations to rise significantly, additional clinical trial data is required and we do not anticipate trial data for some time.
The information technology sector, among the best performers last week, continued to make rapid progress with Sweden’s Ericsson leading the charge for much of the day and closing up 4.6 per cent at SKr20.50.
Dresdner Kleinwort Wasserstein said that the stock, currently ranked around 28th largest in Europe, “will in all likelihood be eligible to enter the DJ Stoxx 50 index post the rebalancing of the blue-chip index after the close on September 17”. The announcement of the composition of the index is scheduled for September 1 and DKW said buying interest in Ericsson from passive funds would amount to 67m shares.
DKW said it expected Ericsson to replace Aegon in the index and maintained its view that Ericsson is likely to overtake Nokia in the immediate future as Europe’s largest IT hardware company by market capitalisation. The dip in crude oil prices was interpreted as bullish for car manufacturers and related stocks, which rose strongly. Volkswagen rose 2.8 per cent to €31.76, after the company outlined a seven-point plan as the basis for wage talks on a new contract with its 103,000 staff. The plan aims to save Volkswagen €2.04 in personnel costs over six years and includes a two-year wage freeze.
MAN, the German trucks and engineering group, topped the FTSE Eurotop winners table in mid-session its shares advancing 4.3 per cent to €27.54 after news that Axa, the French insurance company, had increased its stake to 7.6 per cent from below 5 per cent.
Michelin, the French tyre manufacturer moved up 2.1 per cent to €43, responding to a bullish note from Deutsche Bank which reiterated its “buy” stance on the stock and its €55 price target.
The luxury goods sector attracted keen support. Swatch Group, Christian Dior, LVMH and Richemont all benefited from broker upgrades.
Swiss company Swatch rose 2.2 per cent to SFr153.25, while in Paris Christian Dior, which comprises the couture label of the same name plus luxury goods giant LVMH, was up 2.9 per cent at €47.47. LVMH shares added 2.4 per cent at €52.95.
Deutsche Bank analyst Odile Lange was responsible for the outstanding performance of Richemont shares, which rose 2.9per cent to €32.10.
