European stocks surge higher

Summary:

• Strong gains seen in European bourses

• DE30 takes out 13300 resistance; <2% from ATH

• EU50 rallies to 4 ½ year high

Stock markets across the continent are in a bullish mood this morning with strong gains seen across all the major benchmarks. The Eurostoxx 50 has rallied to its highest level in 4 ½ years while closer to home the FTSE has added around 65 points to gain by almost 1% on the day. What’s quite remarkable is that there doesn’t really appear to be much of a catalyst behind these latest gains and the moves are more likely technical breakouts as European shares look to play catch-up with their US peers, with new record highs on Wall Street a near daily occurrence at the moment.

The DE30 has accelerated higher after breaking above the 13300 resistance level. The market is now trading at its highest level since January 2018 and is less than 2% from its all-time high of 13594. Source: xStation 

The positive sentiment began during the Asian session with sizable buying seen in Shanghai and Hong Kong and after some fairly soft trade in Far East equities of late, it seems that the markets may be firming up once more. Looking across other asset classes there is a mild risk-on feel with bond yields rising and the Japanese Yen and Swiss Franc falling back, but these moves are not anywhere near as dramatic as those seen in the equity space. 

The final quarter of the year is shaping up to be far more enjoyable for investors than the corresponding period in 2018, with the reversal in fortunes largely being driven by marked changes in monetary policy and international trade tensions compared to 12 months ago. While the Fed are unlikely to lower rates at their final meeting of the year, they have cut at their past 3 policy decisions and with the resumption of asset purchases and a move further into negative territory by the ECB there is clearly a more accommodative monetary policy backdrop. 

There has also been a perceived U-turn on trade, with the US and China now widely seen as de-escalating tensions with a phase one agreement. Skepticism still abounds on this front but for now it seems that investors are happy to go along with the positive rhetoric unless there’s a concrete reason to doubt it. A private meeting between Donald Trump and Fed Chair Powell at the White House yesterday sent the rumour mill spinning, with conspiracy theorists wasting little time to suggest that perhaps the US president was warning the central bank chief that he was about to pull the plug on a China trade deal. However, for now the markets continue to look through the potential negatives while choosing to focus on the positive, and as long as sentiment remains buoyant then the chances for further gains into year-end remain favourable.   

You have to go back over 4 years to find higher prices for the Eurostoxx 50 and the benchmark is now within striking distance of its record peak. Source: xStation