A rally in auto stocks and strong US data helped European shares set a 5-year high on Friday and record their fourth consecutive weekly gain, with cyclical shares leading risers. Automotive stocks added 2.9 percent after Europe's car market grew for the first time in 1-1/2 years in April, while tyremaker Michelin said sales rose in Europe last month.
They led a rally in shares that depend on economic growth, with banks and retailers rising up 1.5 percent and 0.9 percent respectively, while defensive healthcare and food & beverage issues fell 0.6-0.9 percent. Traders said clients, encouraged by continued monetary stimulus from central banks, were seeking higher returns among riskier companies.
"It's all one way today: out of defensives and into cyclicals," a senior trader in London said. "Several big houses are pushing the same way." These cyclical - or growth-tracking - shares helped the pan-European FTSEurofirst 300 close up 0.2 percent at a new 5-year closing peak of 1,248.18 points, taking its weekly gain to 1.3 percent. The Euro STOXX 50 rose 0.4 percent to 2,817.99 points on Friday. The indexes extended gains in the afternoon after better-than-expected US sentiment and economic activity data. "The markets are not purely liquidity-driven, what is happening in the US is real," said Didier Saint-Georges, a member of the investment committee at Paris-based Carmignac Gestion, which has 57 billion euros ($73 billion) under management.
"Altogether we do remain fairly bullish on the market. I don't think this exuberance is irrational." While preferring US and Japanese shares to European ones, Carmignac shed its negative bets on European indexes last month and has long positions in some defensive names in the region.
Charts showed a 19 percent rally since late April had left the Euro STOXX 50 in "overbought" territory in its 7-week Relative Strength Index, a momentum indicator. Yet each market dip has been bought into, pointing to resilient investor appetite and possible further gains ahead. "As long as you see gains in this fashion and volumes going high, then volume itself supports the move," said Dag Muller, a technical analyst at SEB in Stockholm, who saw the next resistance at the index's July 2011 top of 2,878 points.
Volume in the Euro STOXX 50 was at its highest since the latest leg of the rally started in April, with 357.8 million shares changing hands this week. "Should we move back to 2,750 then I would see sellers coming back and unloading below the previous high (set in March).