* FTSEurofirst 300 up 0.5 pct in thin volume
* Strong appetite for Nov put options signals caution
* Technical charts open to further gains
By Toni Vorobyova
LONDON, Nov 6 European equities were lifted by a
clutch of strong earnings reports on Tuesday, although volumes
were subdued as many preferred to wait for the outcome of the
neck-and-neck U.S. presidential election.
Tuesday's polls will determine whether incumbent Barack
Obama or Republican challenger Mitt Romney are in charge of
resolving the "fiscal cliff" of multi-billion dollar spending
cuts and tax increases, which threatens to plunge the United
States back into recession next year.
The fate of the U.S. economy has become increasingly key for
European companies, such as Adecco, as the euro zone
crisis crushes domestic growth. Shares in the staffing group
added 3.2 percent after stronger sales in North America
compensated for a continuing slowdown in Europe, enabling it to
beat expectations on third quarter profit.
"If you look at pockets of strength within Europe it's
companies that are exposed to the U.S. and to Asia," said
Stephen Walker, head of equities research and market strategy at
The gains in Adecco, coupled with a strong performance in
the insurance sector after an outlook upgrade by Hannover Re
helped the FTSEurofirst 300 to close 0.5
percent higher at 1,114.77 points.
The EuroSTOXX 50 added 0.7 percent to 2,535.94
points with volumes, at just 57 percent of the 90-day daily
average on EuroSTOXX 50, the fourth lowest so far this year.
"The market has a bit of a firmer tone today ... (but) I
doubt people are taking big positions prior to the elections.
Concerns have clearly risen over the fiscal cliff," said Tristan
Hanson, head of asset allocation at Ashburton.
He added that the impact on markets was not clear, with
Obama likely signalling a status quo whilst Romney is seen as
more pro-business but also brings more uncertainty due to his
plans to replace Federal Reserve Chairman Ben Bernanke.
The uncertainty of the election and the fiscal cliff has
sent European equities investors to the options market in search
of protection. The put/call ratio on the EuroSTOXX 50, which
compares how many downside options are bought compared to upside
ones, has climbed to its highest since August.
Activity has been particularly strong in the November
contract, where open interest in puts has surged by 22 percent
in the past fortnight, according to data from Eurex.
Strikes in the 2,500 to 2,200 points range have been most
popular, suggesting investors are factoring in a possible fall
in the index of some 300 points or more.
The increased hedging activity come as European equities
enter the eighth weak of range trading, in which the market has
been stuck after hitting multi-month peaks in mid-September.
Since then, broad pan-European STOXX 600 index has risen in
18 sessions and fallen in 19, with both moves averaging around
0.6 percent, but volumes have been on average 8 percent stronger
on the up days, according to Reuters calculations.
From a technical point of view, the volumes, along with
other indicators, suggest the door remains open for more gains.
"The overall uptrend is still intact, the classic indicators
are still in that position, with the 50-day moving average above
the 200-day," according to Riccardo Ronco, head of technical
analysis at Aviate Global.
"Once we clear the September-October resistance, about 277-8
points (on STOXX 600), I think we can try to reach 280-290," he
added, highlighting 265 points as the key support for the index
which closed at 274.55 points on Tuesday.