Europe’s Record Jobless Rate Seen Resisting Recovery
That could be an indicator of when the broader market rally may run out of steam this time although not necessarily. In 2000 the gap between growth and value stocks was narrow yet the overall market downturn did not begin until around five months after the gap began to close. In the past five years the MSCI Europe Value Index has underperformed growth by nearly a quarter, in the run-up to the 2000 market peak, the gap between the two was less than 5 percentage points. SMALLER POOL In the current market rally – European stocks rose in 14 of the last 16 months and the STOXX Europe 600 index is up by around a third in that time, trading near five-year highs – the pool of obviously cheap, “deep value” stocks for investors to choose from has already contracted. The number of STOXX Europe 600 companies trading below their 10-year average price/earnings ratio has halved to around 270 over the past two years. On the flip side, investors’ aversion to companies exposed to the economic cycle during recent years has left many well-established companies with healthy balance sheets trading at lower valuations than the overall market. In these cases, the distinction between value and quality stocks has been blurred. “The opportunity is not so much in deep value but in relative valuation within the European equity space, where you have a lot of cheap cyclicals that you can invest in and benefit from the cyclical upturn,” said Manu Vandenbulck, senior investment manager at ING Investment Management. On a sector basis, energy and financials – the biggest weights within the MSCI Europe Value index – look the cheapest, followed by utilities and consumer discretionary shares. Investors, though, are using additional criteria to filter stocks that are cheap for good reason from those that may be unjustly discounted. ING Investment Management looks at sustainability of dividend payments, for example, while JPMorgan prefers firms well placed to ride Europe’s economic recovery. “That is banks, obviously, autos, part of construction, part of consumer cyclicals.
Why Europe is crying over spilled milk
The milk quota was introduced in the 1980s in response to surplus production and acts to maintain dairy prices plummeting. The measure is crucial to famers in poorer regions of Europe who rely on the market stability the quota brings. In 2015, the European Union will abolish the milk quota, sparking concerns that the move would open the door to market instability. “After the quota, there will be a tremendous impact in market. The volatility of milk price is high already, but when the quota ends, the volatility will increase further,” Paolo de Castro, chair of the European Parliament’s agriculture committee told CNBC. But five member states including Germany and Cyprus were fined a total of 46 million euros on Tuesday for exceeding their milk quotas, casting doubts over the Commission’s hopes of calm in the dairy market after the quota rules end. Agricultural experts said that the quota could be holding back production in some countries and a boost in milk production is possible after it has ended. Removing the quota in countries that have already exceeded the cap is going to help increase the supply of milk, Professor Jeremy Franks from Newcastle University’s School of Agriculture told CNBC, adding that it is “holding back production”. The scrapping of the milk production limit comes as the Common Agricultural Policy, which provides help to farmers across the continent, undergoes sweeping reform. “Areas of higher costs and more disadvantaged places, are likely to reduce production, therefore there will be winners and loser across EU,” he told CNBC. Renwick said milk prices are likely to fall with the boost in milk production after the 2015 quota lift, but global prices will play a big role. ) “What has been happening in recent years is that EU price has been closely linked to world price. With the opening up in markets and reduced use of price support, the EU is closer to world market.” While the increased milk supply could push down prices, Renwick said price cuts may not be passed on to consumers as companies bag the extra profit. By CNBC’s Arjun Kharpal: Follow him on Twitter @ArjunKharpal
The recovery is happening painfully slowly and thats another reason why well see jobless rates far above 11 percent well into 2015. Even after the currency bloc emerged from its longest-ever recession, economists predict unemployment to keep rising and peak at 12.3 percent in the final quarter of this year. The job markets resistance to an improving economy has been the subject of political debate across the region, with European Central Bank President Mario Draghi urging governments to implement decisive structural reforms to fight unemployment. Stocks Decline European stocks sank today as the U.S. faced the first government shutdown in 17 years and Italian Prime Minister Enrico Letta fought to save his administration. The Stoxx Europe 600 Index fell 0.8 percent to 309.76 at 4:11 p.m. in Frankfurt . The euro was little changed at $1.3530. Italys Letta said hell request a confidence vote for Oct. 2 to try to save his five-month-old administration after Silvio Berlusconi withdrew his support from the ruling coalition and pulled his ministers from cabinet. The Organisation for Economic Cooperation and Development sees Italian unemployment at 12.5 percent next year. Data released at 10 a.m. in Rome tomorrow will show whether joblessness still is near a May all-time high of 12.2 percent. It stood at 12 percent in July.
Total sales climbed 5 percent. KappAhl slumped 7.4 percent to 39.80 kronor after it proposed paying no dividend. The company also announced fiscal fourth-quarter net income of 7 million kronor ($1.1 million). Portugals PSI 20 Index (PSI20) gained 1 percent as Portugal Telecom, which accounts for 11 percent of the benchmark measure, surged 7.2 percent to 3.64 euros. The countrys largest phone company said that the merger will generate additional revenue and savings from cost cutting totaling 1.8 billion euros ($2.5 billion). The merger will consolidate the position of both companies as the leading operator for Portuguese-speaking countries, Portugal Telecom said in a statement. Intesa Sanpaolo SpA, Italys second-biggest bank, jumped 3.7 percent to 1.67 euros. Societe Generale SA, Frances second-largest bank, gained 2.1 percent to 38.66 euros. MorphoSys AG climbed 6.8 percent to 61.12 euros after saying that Novartis AG had triggered a milestone payment for the company by starting a clinical trial. To contact the reporter on this story: Jonathan Morgan in Frankfurt at firstname.lastname@example.org To contact the editor responsible for this story: Andrew Rummer at email@example.com Financial traders monitor data on computer screens at the Frankfurt Stock Exchange in Frankfurt. Photographer: Ralph Orlowski/Bloomberg Oct.
Europe stocks close down but Italy recovers
European shares closed down on Wednesday, as the U.S. government shutdown continued and jobs data came in weak. However, Italian shares rallied after Prime Minister Enrico Letta won a vote of confidence in the Senate by a resounding margin. IBEX 35 — The pan-European FTSEurofirst 300 Index provisionally closed down 0.7 percent at 1,246.79 points, after private sector job creation in the U.S. came in lighter than expected in September, but remained in the same slow-but-steady growth range. (Read More: Private jobs come in light for September: ADP ) Meanwhile, the political impasse in the U.S entered its second day, which weighed heavily on investor sentiment. The White House ordered federal departments to execute shutdown plans, leaving nearly 800,000 people on unpaid leave, after Democrats and Republicans failed to agree on a spending bill before Monday’s midnight deadline. It is uncertain when the standoff will end , but the dispute raises concerns over the looming debt ceiling, which must be raised before October 17, if the government is to avoid a debt default. In the meantime, U.S. stocks traded lower on Wednesday, wiping out most of the previous session’s gains. The Italian FTSE MIB was a standout gainer among European indexes.