European shares head for longest run of record highs since 1990

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European shares inched towards their longest run of record high sessions in at least three decades, boosted by a blockbuster earnings season and strong recovery from the pandemic.

The regional Stoxx 600 index inched up 0.1 per cent to yet new heights — the 10th consecutive session that it has eked out a record. The index is headed for its longest streak of all-time high sessions since at least 1990.

Earnings reported so far have been strong on both sides of the Atlantic, boosting shares. In Europe, earnings have been 11 per cent higher than expected so far this quarter, according to figures from Goldman Sachs, with more than half the companies that have reported so far exceeding analyst expectations by at least 5 per cent.

“European equities have done just as well as the US this year, [which is] something to be proud of,” said Sharon Bell, European strategist at the bank, pointing out that after the 2008 financial crisis it took 11 years for earnings per share to recover. Now, “earnings this year are easily above the pre-pandemic peak in 2019”.

“In this pandemic it’s the dog that didn’t bark: Europe has had no banking crisis, no sovereign crisis, no debt crisis. Lots of the things that Europe put into place for 2008 have now come to fruition,” she added.

Cyclical stocks led the way, with food equipment company GEA Group’s stock rising 3 per cent after reporting strong second-quarter results on Friday. The UK’s FTSE 100 gained 0.4 per cent as miners and retailers rose, following solid second-quarter growth figures released on Thursday.

Asian markets were weaker, dented by the spread of the Delta variant of Covid-19 and Beijing’s efforts to rein in key sectors of the economy, including its powerful technology companies. Hong Kong’s Hang Seng index fell 0.5 per cent, with Chinese tech groups Tencent and Alibaba among the worst performers, as did the CSI 300 index of companies listed in Shanghai and Shenzhen.

China has adopted a “zero-tolerance” approach to the spread of the Delta variant across the country, prompting authorities to partially shut the world’s third largest port on Thursday after a single case was identified. Shipping costs are already at record levels as supply chains struggle to cope with the onslaught of demand after last year’s lockdown restrictions were lifted in many parts of the world.

“The leadership views the economic costs of the zero-tolerance policy as manageable, and much preferable to the uncontrolled spread of Covid-19,” said Ernan Cui, China analyst at Gavekal Research.

“That means domestic travel and consumer services will continue to be depressed by restrictive measures for at least the rest of 2021, and that prospects for reopening international travel are remote at best.”

Government bonds ticked up, with yield on the US 10-year Treasury falling 0.02 percentage points to 1.34 per cent. Yields rise as prices fall. The benchmark German Bund was unchanged. Oil prices fell back, with Brent crude slipping 0.8 per cent to $70.75.

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