* FTSEurofirst 300 down 0.8 pct, Euro STOXX 50 down 1.6 pct
* Spain’s IBEX has worst month in 1-1/2 yrs, GDP data hurts
* Corporate earnings offer some relief from a low base
By Toni Vorobyova
LONDON, April 30 (Reuters) – European stocks snapped a
four-session rally on Monday, with news of a recession in Spain
putting the euro zone’s economic and debt problems back in the
spotlight and charts pointing to more market weakness as long as
a key resistance level holds.
Spain’s IBEX index finished April down 12.5 percent in its
worst monthly showing in nearly 1-1/2 years. Investors
braced for more turbulence in May, when the second round of
presidential elections in France and parliamentary polls in
Greece could shake the euro zone’s ability to reach a consensus
on how to deal with debts and clamber out of recession.
“On a macro front, or political front, in Europe things
aren’t looking so great … I am cautious in the short term,”
James Butterfill, equity strategist at Coutts, said.
The Euro STOXX 50 index of euro zone bluechips closed down
1.6 percent at 2,306.43 points on Monday. The
pan-European FTSEurofirst 300 fell by a more modest 0.8
percent, cushioned by the presence of Nordic stocks.
Strategists at JPMorgan said that Spain would likely remain
the underperformer in Europe, while Germany – which is
up 15 percent for the year-to-date – and Britain would
do well.
Euro STOXX 50 has lost 8.2 percent in April, its
worst monthly showing since August 2010.
Volumes on Monday were at just 74 percent of the 90-day
daily average, with some investors extending their weekend in
anticipation of a holiday on European bourses on Tuesday.
A run of relatively solid corporate reports had enabled the
index to stage a tentative recovery last week, but it stumbled
against technical resistance at the 200-day moving average which
– around 2,348 – also acted as its ceiling on Monday.
“It still has a strong obstacle in the form of 200-day
moving average … In order to change (the outlook) to the
positive side we need to break above,” Dmytro Bondar, technical
strategist at RBS, said, adding that weakness would likely be
limited by the bottom of the recent range, at 2,280.
Data from EPFR Global showed outflows from European equities
totaling $4.6 billion last week – the biggest in eight months.
Spain, Italy, Greece and the Netherlands, however, enjoyed small
inflows, suggesting that some bargain hunters believe the region
will manage to resolve the three-year-old crisis.
“Our European equity mutual fund flow sentiment indicator
fell sharply … into the region that, in our view, reflects
very depressed sentiment levels and historically has acted as a
useful contrarian buy signal,” Nomura strategists wrote.
One thing that could persuade investors back into Europe is
corporate profits, with strong results driving sports goods
maker Adidas 5.3 percent higher on Monday.
Of the STOXX 600 companies which have reported first quarter
results so far, 58 percent beat or met earnings forecasts, up
from 52 percent for full year 2011, according to Thomson Reuters
StarMine data. Butterfill at Coutts noted that the beats came
against a fairly low base of expectations, but said that overall
the earnings picture was supportive for the market.
“If the markets begin to price a euro zone breakup, but
ultimately avert this scenario, as was the case in September
2011, then we could see a further downside of 8.7 percent,
bringing the Euro STOXX 50 to 2,115 level,” he said.
“However, the markets have already priced for disappointment
in Spain and a less favourable outcome in the France/Greek
elections. This, supported with better than expected corporate
results means unless the markets see greater probability of a
euro zone breakup then the recent correction doesn’t have much
further downside.”
