European Shares Rise as Luxury Stocks Shine on China Hopes

By Susan Mathew

(Reuters) -European shares scaled over three-week highs on Monday as easing COVID-19 restrictions and new stimulus in China helped carry on last week’s optimism, while investors looked for more economic data this week, including German inflation.

Authorities in China’s commercial hub of Shanghai will cancel many conditions for businesses to resume work from Wednesday, while city officials also announced an action plan to boost the economy, keeping up hopes of growth and demand from the world’s second largest economy.

The pan-European STOXX 600 index rose 0.8% by 0824 GMT with luxury firms, which derive significant demand from China, boosting the index the most.

Loius-Vuitton owner LVMH, Hermes, Pernod Ricard and Burberry rose between 1.8% and 4.6%.

“There’s a big sigh of relief… that more stringent restrictions will be eased, particularly in Shanghai and Beijing, because (investors have) been really worried about the ongoing zero COVID strategy and the impact for China’s economy,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

Gains were largely broad-based, led by a 2.9% jump in technology stocks. Volumes are expected to be subdued with Wall Street closed for the Memorial Day holiday.

European stocks had marked their best week since mid-March last week as upbeat U.S. consumer sentiment data, signs of peaking inflation and clarity on the Federal Reserve’s plan had calmed markets.

This week, data is expected to show euro zone inflation rose further from last month’s record high, piling pressure on the European Central Bank. German annual inflation data, due at 1200 GMT, is seen hitting 8%, according to Refinitiv data, having hit a four-decade high of 7.8% last month.

But markets could take the data in stride given the ECB has already signalled that it will hike its borrowing rate from -0.5% to 0% or above between July and September this year, Streeter said.

Monday’s gains saw the STOXX 600 cut monthly losses to 0.5%. It has logged gains only in March this year.

Among individual stocks, Sanofi slid 3.3% after the U.S. Food and Drug Administration put an actual use trial of its Cialis erectile dysfunction treatment on clinical hold.

Telecom Italia jumped 2.8% after the company and Italian state investor CDP signed a preliminary agreement to combine the phone group’s fixed network assets with those of state-owned broadband rival Open Fiber.

The telecom sector fell 0.7% as Deutsche Telekom and Cellnex declined. A report said Canada’s Brookfield and the Spanish firm are eying a $21 billion bid for Deutsche Telekom’s towers unit.

(Reporting by Susan Mathew in Bengaluru; Editing by Shailesh Kuber)