* FTSEurofirst 300 down 0.1 pct, retreats from 2-yr high
* EuroSTOXX 50 approaches overbought levels
* Strategists turn more cautious, BofAML recommends puts
By Toni Vorobyova
LONDON, Jan 11 European equities stalled on
Friday, with weak economic data from the United States and
concerns about the scope for more stimulus in China giving
investors the excuse to lock in profits on a new year rally to
The U.S. trade deficit unexpectedly grew in November,
suggesting that fourth quarter gross domestic product growth in
the world's biggest economy would likely be lower than
The FTSEurofirst 300 index provisionally closed 0.1 percent
lower at 1,163.40 points, retreating from Thursday's
two-year peak of 1,170.29 hit on the coat tails of last-minute
end-2012 U.S. budget deal to avert steep austerity measures.
"We got some fantastic returns in the early days of this
year. If we look at valuation and momentum indicator it seems
like this rally is reaching the ceiling. Looking at the earnings
season, we think there is more downside risk than upside risk on
earnings," Peter Garnry, strategist at Saxo Bank, said.
"If you take a tactical position around this, you would
either underweight European equities or sell out. If you are
really aggressive you could go short, and the (German) DAX
could be a good way to do that."
Others have also started to turn more cautious on equities,
with Bank of America Merrill Lynch, Credit Suisse, Cheuvreux and
Goldman Sachs all warning of a possible near-term consolidation
or even correction.
"The probability of a major correction in risk markets in
the first half of 2013 is rising particularly because investor
sentiment has simply leapt higher in recent weeks," BofAML's
investment strategists wrote in a note. They recommend hedging
long bets on Europe with EuroSTOXX 50 put options.
Investors have indeed been snapping up puts, which give the
right to sell stocks at a pre-set price and can thus protect
against market falls. The 5-day average put/call ratio on the
euro zone blue chip index has risen to a nine-month high of 1.61
times, according to Thomson Reuters Datastream.
Miners were the worst performing sector on Friday, off 1.7
percent, after higher-than-expected Chinese inflation,
which hit a seven-month high in December, fuelled concerns that
there may be little scope left for fresh central bank stimulus
in the world's top metals consumer.
Among single stocks, Tullow Oil was one of the top
fallers, losing 3.2 percent after its output guidance for 2013
came short of expectations.
With the earnings season already in full swing in the United
States and set to kick off in Europe in a week's time, outlooks
are in the spotlight.
"For next year, bottom up expectations (based on forecasts
for individual stocks) are 12 percent earnings growth and we
think that's too optimistic once again," said Ronald Doeswijk,
chief strategist at Robeco, adding that he is "not very
enthusiastic about the outlook for equities".
"In a market environment in which equities do not rise more
than 15 percent, you should own low volatility equities. We
still think that apart from a strategic allocation to
conservative equities, as we call them, these are still
attractive from a technical point of view."