European Stocks Surge to Record on Earnings, Stimulus Optimism

This content was published on July 23, 2021 - 15:59

(Bloomberg) -- European stocks climbed for a fourth day, reaching a fresh record just days after the Monday selloff as investors focused on positive earnings and reassurance of loose monetary policy in the region.

The Stoxx Europe 600 Index gained 1.1% by the close in London, surging to a new historical high, with a broad advance across sectors that included both cyclicals and technology. Vodafone Group Plc and Lonza Group AG both climbed after results beat estimates.

Valeo Rises; Signify Tumbles on Results Miss: EMEA Equity Movers

European equities have regained momentum after Monday’s concerns over the spike in virus cases fueled the biggest drop of this year. The market has been buoyed by the European Central Bank’s reassurance that it won’t withdraw support too quickly.

“The Monday selloff seems like a moment of brief panic, and while it was startlingly short-lived, it was enough it appears to reset sentiment and activity and prompt a resurgence of bullish momentum,” said Chris Beauchamp, chief market analyst at IG. “Central banks have done their bit to allay fears, most notably the ECB this week.”

The Stoxx 600 is up 1.5% this week, the biggest weekly advance since early May, with investors focusing on signs of corporate profit recovery. Financial services, travel and leisure and consumer products were the best performers this week, while energy and personal care sectors lagged.

“Oversold reflation/reopening trade has seen dip buyers stepping in, reassured by good second-quarter results, and a broken link between infections and hospitalizations,” Barclays Plc strategists led by Emmanuel Cau wrote in a note. “We advise looking through the noise, as fundamental justification for more aggressive selling is missing.”

Europe’s Recovery Threatened by Supply-Chain, Inflation Squeeze

Data on Friday showed Europe’s economic surge strengthened in July, boosted by the services sector, although businesses warned of threats to the outlook in the form of raw-material shortage, delivery delays and rising costs.

Bank of America Corp. strategists led by Sebastian Raedler said in a note that “the downside risks are rising” for global growth momentum and lowered European equities to neutral. They added that euro-area PMIs are likely close to the top, and the spread of the delta variant will likely limit third-quarter growth recovery in the region.

Among notable movers, Valeo SA rose 6%, the most since November, after its results for the first half of the year were “solid”, according to Morgan Stanley. Scatec ASA fell 16% after second-quarter earnings missed estimates.

Sanford C. Bernstein strategists led by Sarah McCarthy said in a note today that earnings revisions remain in strong positive territory across all regions, and see revisions strongest in Europe, particularly for cyclical sectors.

JPMorgan Chase & Co. strategists said that in Europe, 62% of firms that have reported profits so far have beaten earnings-per-share estimates with strong delivery in energy and cyclical sectors versus defensives.

For a daily wrap highlighting the biggest movers among EMEA stocks, click here

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