UK stocks jumped off the back of a weaker British pound but nothing really captured the imagination of European investors. While the FTSE 100 saw gains in excess of 1%, the DAX spent much of the afternoon in negative territory. A rebound in oil and base-metal prices meant basic resource and energy companies were in demand. Strong Q1 results on Wall Street have improved risk sentiment but aren’t a reason to get excited about buying European shares.
Company earnings have been living up to lofty expectations in the States but there are not many firms blowing the roof off in Europe. A glass half-full take on European earnings growth is that Europe is earlier in its economic recovery than the US. That would mean there is more growth to come in Europe while earnings growth in the States may have topped. The glass half-empty version says the US is just a much more dynamic economy and Europe will never catch up. Earnings growth can only go so far if Europe is just plastering over its structural problems and high unemployment with low interest rates.
Shares of property firm Hammerson PLC (LON:HMSO) were a top riser after it withdrew is recommendation to takeover rival Intu Properties PLC (LON:INTUP). Shares of Intu dropped on the news. It seems Hammerson has seen the folly of its ways. Or else, shareholder complaints forced them to. Retail-orientated property firms have been out of favor given the problems on the high street and a slowing property market. The old adage when you are in a hole, stop digging springs to mind. Still, Hammerson may have wished they stuck to their guns. Intu shares down -25% YTD before the merger announcement were a bargain and inflation data today shows the squeeze on UK consumers has just ended.
The pound has seen a swift reversal from the post-Brexit highs made earlier this week. The losses for Sterling mounted after UK inflation data for March came in much softer than expected. Wages rising faster than inflation means no more squeeze on consumer pockets. That’s good for economic growth and a reason to be less fearful of tighter monetary policy. But it was the size of the inflation downturn that caught some off-guard. The prospect of inflation heading back below the Bank of England’s target of 2% means doubt is creeping back in about the May rate rise.