* FTSEurofirst 300 down 0.1 percent
* Nomura, JPMorgan cautious on equities short-term
* STOXX 600, FTSEurofirst 300 in overbought territory
* Transocean climbs as shareholder demands dividend hike
By David Brett
LONDON, Jan 28 European shares edged back from
two-year highs early on Monday and a number of indicators
suggested a bullish run for markets at the start of this year
could be reaching its peak.
By 0904 GMT, the FTSEurofirst 300 shed 1.55 points,
or 0.1 percent, to 1,173.26. That compared to a near two-year
high of 1,174.81 reached on Friday.
Equity funds outgained bond funds for the seventh straight
week last week but the pace of inflows slowed, EPFR Global data
showed and several major investment banks said there were signs
the market may be reaching a natural top.
"Our global indicator now stands at +1.39 standard
deviations, signaling the most bullish sentiment from equity
mutual fund investors since January 2009," strategists at Nomura
said in a note.
"All of our proprietary regional mutual flow indicators,
with the exception of Japan, are also at very bullish levels and
along with elevated readings from another of our systematic
sentiment indicators, the composite sentiment indicator has
prompted our Global Quantitative Strategy Team to issue a
short-term tactical neutral position on the market," Nomura
The Citigroup U.S. Economic Surprise Indicator has turned
negative, and bullish sentiment, as measured by the
AAII Investor Sentiment Survey, is now in the top 5 percent of
the observed readings.
JP Morgan said in a note historical data for each of these
readings shows they are normally followed by lacklustre equity
returns, while downgrading its weighting in cyclicals versus
Technical analysts say the FTSEurofirst 300 and the more
broader Stoxx 600 are in overbought territory according
to 14-day relative strength indexes which measure the magnitude
of recent gains to recent losses in an attempt to determine
overbought and oversold conditions.
Stock markets have been supported by signs of a sustained
recovery in the United States, while euro zone PMIs, although
still in contraction territory, outperformed expectations last
week as the economy took a step closer to recovery.
"Investors are firmly focused on the forward-looking
indicators, as the global environment continues to favour
greater weightings in risky assets," Ian Williams, equity
strategist at Peel Hunt, said.
"At current levels from an asset allocation point of view
there would be no great rush to take on further risk. Technical
indicators are overbought but the bigger picture question is the
equities valuation versus other asset classes, and although not
quite as appetising as it was a few months ago it is still a
no-brainer," he said.
Equities yield around 4 percent, compared with "safer" bonds
on about 2 percent and cash which yields close to zero.
That drive for yield pushed Transocean 4.1 percent
higher after Activist shareholder Carl Icahn said late on Friday
he wanted to see the offshore rig contractor declare a dividend
of at least $4 per share.
ASML climbed 3.4 percent, after Citigroup upgraded
the world's leading provider of tools for making computer chips
to "buy" citing an improving outlook for earnings.
It has been a robust if unspectacular start to the earnings
season in Europe, with 57 percent of the companies that have
reported earnings beating or meeting expectations.
It has been a better start in the U.S., however, where Of
the 141 companies in the S&P 500 that have reported
earnings to date for the fourth-quarter 2012, 67 percent have
reported earnings above analyst expectations. This is higher
than the long-term average of 62 percent.
Where earnings remain a concern companies continue to get
punished by investors. Capita was among the top faller,
down 2.1 percent after Canaccord cut its rating to "sell" on
valuation grounds warning the medium-term outlook for EPS growth
is much more muted for the British outsourcing firm.