Trade deal optimism lifts European shares as exporters rally

MILAN: European shares rose on Wednesday driven by the export-oriented autos and tech sectors as optimism grew that the United States and China could avoid a full-blown trade war that would further brake a slowing global economy.

The pan-European STOXX 600 benchmark broke a fresh three-week high, up 0.9 percent by 0951 GMT, while the UK's FTSE  hit its highest in five weeks, up 0.8 percent, and Germany's DAX was up 1.1 percent.

"My scenario is that of an economic slowdown but I expect things to get gradually better following a brutal 2018 dominated by tariffs and very harsh commercial rhetoric," said Roberto Lottici, fund manager at Italy's Banca Ifigest.

Chinese and U.S. teams ended trade talks in Beijing on Wednesday and officials said details will be released soon.

European equities recorded their worst year in a decade in 2018 but so far this year they are up more than three percent. A trade deal could turn investors more upbeat over company earnings as the fourth quarter earnings season gets underway.

Autos rose 2.8 percent, making them the biggest sectoral gainer in morning deals. Shares in Daimler and BMW, which both produce in the U.S. autos for the Chinese market, rose 3.3 and 1.9 percent respectively.

Fiat Chrysler added 3.7 percent. A Reuters report said the Italian-American carmaker was nearing a settlement to resolve U.S. allegations in a diesel emission case.

Tech stocks added 2.2 percent, as the upbeat mood over trade helped investors shrug off reports that U.S. tech giant Apple had cut planned first-quarter production for its three new iPhones.

The sector had already fallen sharply last week on the back of Apple's first sales warning since the iPhone launch in 2007, pricing in much negativity. A senior White House adviser said last week Apple sales should recover once Washington strikes a trade deal with Beijing.

3D recognition technology maker AMS, however, which is more exposed to the newest iPhone models and is penalised by its high level of debt, fell as much as 6.2 percent to the bottom of the STOXX, further hit by a Credit Suisse downgrade.

Investors have become wary of investing in heavily indebted companies as prospects of higher interest rates could increase their refinancing costs.

Luxury stocks, which are heavily exposed to the China, were also in demand with LVMH surging 2.6 percent, on  expectations a trade deal could ease pressure on the slowing Chinese market.

Elsewhere the focus was on earnings updates.

TGS fell 0.6 percent after the Oslo-listed seismic surveyor posted a smaller-than-expected increase in quarterly revenues and cautioned on exploration spending this year.

Britain's No.3 builder Taylor Wimpey said indicators for 2019 sales were solid, sending its shares up 5.1 percent.

Overall, fourth-quarter earnings for Europe are expected to have risen 7.1 percent on revenues up 4.5 percent, according to Refinitiv data.