March 3, 2021

Europe Stocks Extend Recovery Rally

Banks were the main focus of attention as Deutsche Bank talked up the sector’s attractions on valuation grounds.

Majority state-owned Royal Bank of Scotland was up 8 percent as Deutsche Bank raised its rating on the firm to “buy.” Its top pick in the sector Barclays was up 6.3 percent.

“Though we are cautious about our ability to precisely call a turn in sentiment, we think the sector valuation will prove attractive in hindsight,” Deutsche Bank said, while cutting earnings forecasts across the sector to reflect slower growth.

On Monday, Europe’s banks received a boost after the European Commission said there was no need to recapitalise the banks over and above what had been agreed after a recent annual “stress test.

And Greece’s EFG Eurobank and Alpha Bank announced a merger deal and capital boost from Qatar, a tie-up that boosted confidence that more deals within the sector could happen, helping banks to better confront their country’s severe debt crisis.

Elsewhere, other top gainers on the FTSE 100 were being helped as brokers argued some stocks had been hit too hard in the recent sell off.

Automotive parts maker GKN climbed 3.7 percent as Nomura upgraded its rating on the firm to “buy” from “reduce.”

“We think that to what extent there was a mid-cycle slowdown at GKN, it appears to be over. We now see a strong structural growth outlook at a reasonable valuation,” Nomura said in a note.

And artificial joint maker Smith Nephew rose 3.5 percent as Deutsche Bank started coverage on the firm with a “buy” rating on valuation grounds.

By 11:48 a.m. British time, the FTSE 100 index added 118.57 points, or 2.3 percent at 5,248.49, after overnight Asian shares rose strongly and in the U.S., blue chips soared nearly 2.3 percent higher on Monday, adding to Friday’s 1.2 percent advance.

Sentiment was lifted as New York avoided a battering from Hurricane Irene and a rise in consumer spending in July, the biggest gain in five months, provided a ray of hope for the U.S. economy after a slew of recent reports that had signalled a sharp slowdown.


The data helped the risk on trade as miners rallied in tandem with metals prices, but again aided by their recent falls and emerging market exposure

“Following a period of poor performance so far this year, we recommend that investors take a more positive stance (on miners),” Jonathan Jackson, head of equities at Killik Co, said.

“Although there are concerns over the outlook for global economic growth, demand for basic materials remains robust, in particular from developing economies, which are undergoing a commodity-intensive process of industrialisation and urbanisation.”

Analysts at JP Morgan agreed, adding regardless of whether developed markets dip into outright recession or not, they think emerging plays will start to outperform again.

Among JP Morgan’s top picks for emerging market exposure versus recent underperformance are miners; Vedanta, Anglo American and Xstrata.

Randgold, however, fell 0.9 percent after the West Africa-focussed gold miner revised its 2011 production lower, prompting Numis Securities to downgrade its rating to “hold” from “buy.”

Perceived defensive stocks — those that tend to underperform in a risk on environment — littered the fallers list with food retailer Tesco and drugmaker GlaxoSmithKline down 1.0 and 0.5 percent, respectively.

Concerns remained over the health of the broader economy as UK mortgage and consumer credit data pointed to lacklustre economic growth.

And prices of other traditional safe haven asset classes suggested investors remained wary of the pitfalls present in the current economic climate.

Ten-year U.S. treasury yields were just off 60-year lows, while gold remained near its all-time highs, as investors braced themselves for potentially more volatility as they awaited a slew of key U.S. data this week, including the non-farm payrolls report on Friday.

The market will also keep an eye on minutes from the U.S. Federal Reserve’s last committee meeting on August 9, due on Tuesday, which could offer insight on divisions among board members over further stimulus measures.

Article source:

Speak Your Mind