PARIS: European stocks inched higher on Friday, reversing a small portion of the week’s losses and mirroring a rebound in the euro currency, but simmering fears over the borrowing costs of a number of eurozone countries kept investors on edge.
Cyclical shares such as heavyweight miners were among the biggest losers, with Xstrata down 0.4 percent and Anglo American off 0.3 percent. At 1249 GMT, the FTSEurofirst 300 index of top European shares was up 0.1 percent at 958.88 points in relatively low volumes, on track to post a loss of 2.6 percent on the week.
The eurozone’s blue chip Euro STOXX 50 index was up 0.8 percent at 2,259.50 points, after testing its 50-day moving average, a strong support level from which the index has bounced over the past two weeks. Banking stocks gained ground, with UniCredit up 2.6 percent and Credit Agricole up 0.3 percent. Italian and Spanish government debt yields retreated and the euro rose as the European Central Bank bought bonds in the secondary market to ease the tension surrounding the two countries’ debt levels.
But the gains in the euro — which helped highly correlated banking shares pare early losses and turn positive — was mainly seen as the unwinding of bearish bets on the single currency ahead of the weekend rather than a return of investor appetite for risk.
The euro’s correlation with eurozone banking index, which often makes it a gauge of “risk-on/risk-off” trade, has hit a two-year high, with the 25-day rolling correlation between the single currency and the index at 0.871. The recent sharp rise in correlation between the different asset classes has rattled traditional long-only equity investors, making it more difficult to beat benchmark indexes and limiting their risks by betting on uncorrelated assets.
Around Europe, the UK’s FTSE 100 index was down 0.3 percent, dragged down by miners, Germany’s DAX index up 0.6 percent, and France’s CAC 40 up 0.2 percent. So far this year, the FTSE 100 is down around 8 percent, the DAX is down 16 percent and the CAC 40 is down 21 percent.
