April 10, 2018 / 8:26 AM / 12 days ago

Autos drive European shares higher after Xi pledges tariff cut

MILAN (Reuters) - European shares rose on Tuesday, led higher by gains among automakers after Chinese President Xi Jinping promised a considerable reduction in auto import tariffs this year.

The German share price index, DAX board, is seen at the stock exchange in Frankfurt, Germany, March 21, 2018. REUTERS/Tilman Blasshofer

More broadly Xi’s speech helped calm investor jitters over an escalating U.S.-China trade row that roiled markets last week, lifting the pan-European STOXX 600 benchmark up 0.5 percent by 0756 GMT.

The auto index .SXAP was among the strongest, up as much as 2.1 percent with Germany’s BMW (BMWG.DE), Daimler (DAIGn.DE) and Volkswagen (VOWG_p.DE) leading the way.

Xi promised to open China’s economy further and lower import tariffs on products including cars in a speech seen as conciliatory amid rising trade tensions with Washington.

“We would see this as a major step towards opening the Chinese economy and to easing the very tense trade atmosphere... The primary beneficiaries would be German carmakers and the German economy as a whole,” Evercore ISI analysts wrote.

According to their estimates this could lead to earnings tailwinds of up to 4.5 billion euro ($5.5 billion) for German carmakers. BMW is expected to benefit most, followed by Daimler and VW.

Xi also said China would raise the foreign ownership limit in the auto sector “as soon as possible” and push previously announced measures to open the financial sector.

Elsewhere mergers and acquisitions activity and earnings dominated trade.

Bayer (BAYGn.DE) rose 4.9 percent after the WSJ reported that the U.S. Justice Department will allow the German drugs and pesticides group to acquire Monsanto (MON.N) in a $62.5 billion deal, after the companies agreed to sell more assets to win antitrust approval.

If confirmed the approval would remove the last major obstacle to the deal, which Baader Helvea analyst Markus Mayer said would be highly accretive for the German group.

“If the Monsanto deal takes place, the implied portfolio change together with a potential agrochemical cycle recovery might lead to a re-rating,” Mayer said.

LVMH (LVMH.PA) rose 4.9 percent to record highs after the Louis Vuitton owner posted better-than-expected sales growth in the first quarter, helped by thriving Chinese appetite for luxury goods. Its solid update boosted shares in other luxury companies such as Kering (PRTP.PA), up 3.7 percent.

Higher-than-expected quarterly revenues lifted TGS Nopec (TGS.OL) up 12.9 percent to lead STOXX gainers.

Givaudan was a weak spot after the fragrance and flavor maker reported a weaker-than-expected sales increase during its first quarter despite a boost from new contract wins and acquisitions.

According to Thomson Reuters data, STOXX 600 earnings are estimated to rise 3.4 percent in the first quarter, with sales seen up 1.1 percent. Energy companies are expected to be the main drivers of growth.

That compares to 18.5 percent earnings growth expected for the U.S.'s S&P 500 .SPX index.

The basic resources index .SXDP was one of the strongest sectoral gainers, up 1.8 percent, as it recovered from large losses on Monday when stocks with exposure to Russia were hit after the United States unveiled fresh sanctions.

    Reporting by Danilo Masoni; Editing by Raissa Kasolowsky

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