European Factors to Watch - Shares to edge up on U.S. debt plan

Mon Jan 21, 2013 2:15am EST

By Francesco Canepa
    LONDON, Jan 21 (Reuters) - European stocks were seen opening a touch higher
on Monday as a political attempt to break a budget impasse in the United States
revived appetite for shares, although buying momentum was subdued as a key index
hovered just below 18-month highs. 
    At 0709 GMT, futures for the Euro STOXX 50, France's CAC 
and Britain's FTSE 100 were 0.2 percent higher, while contracts on
Germany's DAX added 0.1 percent.
    The futures were taking their cue from a late rebound on Wall Street, where
the Dow Jones and the S&P 500 posted five-year closing highs after
Republicans said the House would consider a bill to raise the U.S. debt ceiling
enough to allow the country to pay its bills for another three months.
    The strategy would buy time for the Democratic-controlled Senate to pass a
budget plan that shrinks the federal deficit.  
    "Although this again could be seen as another round of political battle, any
progress to avoid the immediate dangers will likely be seen as positive by the
market," Credit Agricole said in a note
    Trading volume may be thinner than usual and markets struggle for direction
as Wall Street, the world's largest stock market, is shut for Martin Luther King
Jr. Day. 
    The euro zone blue-chip Euro STOXX 50 index closed 0.3 percent
lower at 2,709.59 points on Friday.
    The index has traded in a 1.8 percent range since hitting an 18-month high
of 2,735.36 points on Jan. 14, showing buying momentum was waning as some
investors locked in their profits on a 11.6 percent rally since mid-November.
    "I've been seeing selling flows on a regular basis for the past few days," a
trader said.
    "People are especially locking in profits on stocks that did very well, like
banks, or single names like Danone."
    The euro zone banking sector has risen 73 percent since late July
while French food group Danone is up 10 percent since mid-October.
    The trader said charts pointed to a bullish market over the next 18-months
after the index broke a string of technical resistances, including the 61.8
percent retracement level of the 2011 selloff at 2,639.
    In the shorter-term, however, he flagged momentum indicators were starting
to show investor fatigue and said the index could pull back to around 2,610, a
high hit in March and tested again in September.
    The Euro STOXX 50's Relative Strength Index, a momentum indicator, has been
falling after testing a six-year high earlier this year.
    
    
    
    HIGHER RETURNS
    The euro zone blue-chip Euro STOXX 50 index has risen around 33
percent since mid-2012 as bond-buying programmes unveiled by the European
Central Bank and other monetary authorities averted the prospect of a break-up
in the currency bloc and pushed investors towards assets offering higher
returns. 
    Returns on euro zone equities were 9.5 percent above the triple-A rated
German bund, while U.S. shares offered a return 7.5 shares higher than the
10-year Treasury, Datastream data showed. 
    "Our advice is to reduce duration and sell out of triple A (bonds), which 
could be the bad story of the year," Lorne Baring, managing director of wealth
management firm B Capital, said.
    "We've got more equities than we've had since 2010."
    Baring recently turned "overweight" European equities versus their U.S.
peers based on more attractive valuations and expected returns.
    The STOXX Europe 600 index offers a dividend yield of 3.6 percent
for the current year, compared to 2.5 percent for the U.S. Standard & Poor's
500, Reuters data showed.
    The yield on 10-year Treasuries is around 1.9 percent, just above an
annualised inflation rate of 1.7 percent based on the Consumer Price Index.
    Fund flows data also showed investors showed investors were piling up
European shares, which yielded more than safe heaven government debt and U.S.
shares. 
    
--------------------------------------------------------------------------------
  MARKET SNAPSHOT AT 0709 GMT: 
    
                                                LAST    PCT CHG  NET CHG
 S&P 500                                    1,485.98     0.34 %     5.04
 NIKKEI                                    10,747.74    -1.52 %  -165.56
 MSCI ASIA EX-JP                                        -0.34 %    -1.89
 EUR/USD                                      1.3331      0.1 %   0.0013
 USD/JPY                                       89.65    -0.44 %  -0.4000
 10-YR US TSY YLD                              1.840         --     0.00
 10-YR BUND YLD                                1.571         --     0.01
 SPOT GOLD                                 $1,690.00      0.4 %    $6.66
 US CRUDE                                     $95.10    -0.48 %    -0.46
 

  > Asian shares retreat from highs, yen volatile before BOJ 
  > Dow, S&P 500 end at 5-yr highs on early earnings beats   
  > Nikkei sluggish as expectations for BOJ action priced in 
  > Treasuries' prices climb as buyers emerge after sell-off 
  > Yen bounces off 2 1/2-year low ahead of BOJ verdict      
  > Gold inches up on Japan easing hopes                     
  > Copper edges higher as China's economy picks up pace     
  > Brent steadies on oversupply concerns; outlook steady    
    
    COMPANY NEWS
    
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projects, which will now be rebranded Glennmont Partners, according to the
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