January 16, 2020 / 8:19 AM / 6 days ago

European shares rise as U.S.-China trade deal clears fog; London lags

(Reuters) - European shares ended higher on Thursday after the signing of a long anticipated Phase 1 U.S.-China trade deal lifted some level of near-term uncertainty, while disappointing earnings dragged down London shares.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, January 16, 2020. REUTERS/Staff

The deal, signed in Washington on Wednesday, still raises questions over daunting purchase commitments of U.S. goods by China, while leaving existing tariffs in place.

However, the prospect of no further escalation in the economically damaging trade war encouraged a slight risk-on mode.

“Investors are maybe not selling on the fact but just pausing for thought that the deal has been signed which is also a source of relief for most people,” said Russ Mould, investment director at broker AJ Bell.

The pan-European STOXX 600 index closed up 0.2%, with London's main index .FTSE lagging its continental peers. Education company Pearson (PSON.L) sank to the bottom of the STOXX 600 with a near 9% fall on a profit warning.

Market players will be shifting focus next week to the quarterly reporting season as it kicks into high gear across Europe.

European utility stocks .SX6P touched their highest levels since late-2008 on strength in power generator RWE AG (RWEG.DE).

Shares of the company rose amid reports that the German government plans to compensate RWE with around 2.6 billion euros ($2.9 billion) for costs related to the country’s planned exit from coal.

Defensive plays including utilities, healthcare .SXDP and food & beverage .SX3P sectors have been pulled back into the spotlight, a reversal from a rally in cyclical stocks which benefited from optimism around an initial U.S.-China trade deal.

“The cyclicals have had a good run because of hopes for a trade deal but people have been hoping to lock in some profits. It all lies on the reporting season now, about what companies have got to say about their prospects,” Mould said.

German shares .GDAXI were flat after closing lower a day earlier on dismal GDP data.

Economic growth in the euro zone’s largest economy slowed sharply in 2019, highlighting the widespread impact of the trade war on demand for exports from the manufacturing-heavy country.

Oil and gas stocks .SXPP rose, tracking a rise in oil prices as the trade deal pointed to more Chinese purchases of American energy products, while a drop in U.S. crude inventories also helped. [O/R]

Reporting by Ambar Warrick and Shreyashi Sanyal in Bengaluru; Editing by Anil D'Silva and Frances Kerry

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