Europe: Stocks bounce higher at end of brutal week

FEB 13, 20166:33 AM

[LONDON] European stocks rebounded Friday on higher oil prices, solid German economic growth and rising US retail sales, regaining some ground lost this week on fears of a global recession.

London jumped 3 per cent higher and Frankfurt and Paris gained 2 per cent, brushing off another slump in Asia, as investors welcomed news that the German economy grew by a solid 0.3 per cent in the fourth quarter.

World oil prices meanwhile climbed on fresh hopes of an OPEC output cut, one day after tanking towards 13-year lows on the stubborn crude supply glut.

Europe's main stock markets were buoyed also by bargain-hunting after another calamitous day on Thursday, when Frankfurt shed 2.9 per cent, Paris slumped 4.1 per cent and London dived 2.4 per cent.

Despite Friday's gains, European markets are still down heavily from the beginning of the year. Milan has lost nearly 23 per cent of its value, Frankfurt over 16 per cent, Paris nearly 14 per cent and London over 8 per cent.

Wall Street equities also pushed higher Friday after data showing retail sales edged 0.2 per cent higher in December and January despite falling oil prices, helping to underpin positive sentiment.

The January and December gains suggest "consumer spending may not be as weak as thought, especially given the lack of inflation," said Scott Hoyt of Moody's Analytics.

Markets were slammed this week by global economic fears centred on China, banking jitters - and questions over the impact of the European Central Bank's quantitative easing (QE) stimulus, dealers said.

"European markets ... have been hit by a whole series of negative factors this week - not only global recession fears and general solvency concerning banks, but by increasing evidence that QE by the ECB does not seem to work - or that it has not had the desired effect so far," said Markus Huber, analyst at brokerage Peregrine & Black in London.

"Some traders also point out that unlike in 2008/2009, major central banks have only limited tools and measures available to support global growth," he told AFP.

Mr Huber added that, during the global financial crisis, the world's central banks had greater scope because interest rates were far higher and liquidity was far lower.

The London stock market was meanwhile propelled higher Friday also on investor relief that British engine maker Rolls-Royce had not scrapped its shareholder dividend.

Rolls-Royce, which did however cut the payout for the first time in almost 25 years, saw its share price rocket over 14 per cent to 606 pence, topping the FTSE 100 leaderboard.

However, the global sell-off showed no sign of ending in Asia.

A near five-per cent plunge in Tokyo led another rout, bringing to an end one of the most painful weeks for global investors as fears about the world economy - and possible recession - stalked trading floors.

"The fear of a global recession is very real," said Craig Erlam, senior market analyst at Oanda trading group.

"It does feel like a culmination of factors that have built up over the last seven years are finally coming together to test just how far the global economy has come and how strong the recovery truly is," he told AFP.

"This is going to be a very challenging year for the global economy and I think the risk of recession is higher now than it has been for some time." Friday's losses in Japan came after the yen, viewed as a haven investment, hit 16-month-plus highs against the dollar.

The dollar had Thursday struck 110.99 yen, which was the lowest level since October 2014.

The rise led Tokyo to say it would take "appropriate" measures, fuelling speculation officials were considering a currency market intervention.

"A strong domestic currency puts an additional burden on the heavily export orientated Japanese economy by making their companies less competitive," noted Mr Huber.

AFP