Investing
European shares jump over 1% as cyclicals advance
Global Banking & Finance Review®
Company
By Susan Mathew
(Reuters) -European shares hit three-week highs on Monday, tracking gains in global equities, even as investors are seen staying cautious ahead of a European Central Bank policy meeting and a scheduled resumption of Russian gas flows via the Nord Stream 1 pipeline.
The pan-European STOXX 600 index rose 1.4% in broad-based buying, led by miners, energy stocks and banks.
Investor sentiment globally was lifted by easing fears about a 100-basis-point interest rate hike by the U.S. Federal Reserve this month, and hopes of fresh China stimulus amid COVID-19 flare-ups. [MKTS/GLOB][.SS]
“It seems as though recession worries eased off a bit and you’ve seen this particularly in the oil industry where supply concerns are rising compared to demand concerns,” said Susannah Streeter, a senior market analyst at Hargreaves Lansdown. [O/R]
The STOXX 600 has slipped about 15% from an all-time high hit in January, as worries about slowing growth in China, the world’s second-largest economy, aggressive central bank policy tightening globally and the fallout of the Russia-Ukraine war dented risk appetite.
In earnings-driven moves on Monday, Finland’s Nordea jumped 3.7% as a rise in earned loan interests boosted second-quarter operating earnings.
Limiting the STOXX 600’s advance, British insurers fell after Direct Line slipped 13.5% on a profit warning. Peers Admiral and Sabre Insurance Group lost 6.8% and 4.3%, respectively.
In the biggest listing in Europe for more than a decade, GSK’s spun-off consumer health business Haleon started trading at 330 pence, before slipping to 328.10.
Meanwhile, maintenance on the Nord Stream 1 pipeline, which brings Russian gas to Germany, is scheduled to end on July 21.
Investors are waiting to see if Russia stalls the resumption of gas supply amid its war with Ukraine. This could result in a gas supply crunch in Europe and keep prices elevated for longer.
“If there’s any hint that there could be a delay in reopening, that’s going to cause fresh jitters about the prospects for euro zone given the gas guzzling nature of countries like Germany,” Streeter said.
The ECB on Thursday is set to increase its key interest rate by 25 basis points amid record-high inflation, and investors will look for clues on the pace and magnitude of future hikes as the central bank lags most of its major peers in raising rates.
The bank’s tool to cap a widening gap between core and peripheral bonds will also be watched.
Italian bond spreads widened on Monday as investors awaited Prime Minister Mario Draghi’s parliament address on Wednesday amid a leadership crisis.
(Reporting by Susan Mathew in Bengaluru; Editing by Subhranshu Sahu)
The STOXX 600 is a stock index that represents large, mid, and small capitalization companies across 17 European countries, serving as a benchmark for the European equity market.
An interest rate hike refers to an increase in the interest rate set by a central bank, which can affect borrowing costs, consumer spending, and overall economic activity.
Investor sentiment is the overall attitude of investors toward a particular security or financial market, which can influence market trends and investment decisions.
Cyclicals are stocks or sectors that tend to perform well when the economy is doing well and poorly during economic downturns, often including industries like consumer discretionary and materials.
A profit warning is a statement issued by a company indicating that its earnings will be lower than expected, which can negatively impact its stock price.
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