EBC Markets Briefing | Hedge funds now turn more bullish on Europe

European shares ended a touch lower on Monday as investors remained risk averse at the start of an earnings-packed week, while global risk events such as the upcoming Fed policy meeting added to market caution.

Britain's FTSE 100 closed slightly higher, boosted by real estate shares on optimism around interest rate cuts in the UK. The BOE will announce its decision after the Fed’s decision in the week.

Global hedge funds ditched bets against European stock markets at the fastest pace in 10 years amid a raft of better-than-expected company results, according to a Goldman Sachs note to clients.

Europe was the region that saw most net buying, as those funds, which have mostly been bearish on the underperforming market, closed their short positions at twice the rate they closed their long holdings.

A recent Reuters analysis of the top 60 companies in the STOXX 600 showed that when European companies reported earnings over the past year, their average daily stock moves were 18% higher than eight years ago.

But China worries keep weighing on European companies’ earnings as the wide-anticipated third plenum failed to impress investors with stimulus and action plans, according to RBC Brewin Dolphin.

The FTSE 100 has stayed above its 50 SMA but it remained stuck in the trading range formed since late May. As such the path of least resistance is lower at the moment.

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