European equities recorded their biggest gain since November 2022, boosted by an easing in the relentless pressure from higher bond yields and optimism over Chinese stimulus measures.
(Bloomberg) — European equities recorded their biggest gain since November 2022, boosted by an easing in the relentless pressure from higher bond yields and optimism over Chinese stimulus measures.
The Stoxx Europe 600 Index rose 2% by the close in its best day since Nov. 10, with 96% of the constituents posting gains. Appetite for stocks was also lifted by comments from Federal Reserve officials, who hinted Monday that further interest rate rises may not be needed. US 10-year Treasury yields slid the most since March.
“The scenario we’re working with for the short-term is that yields may bounce around at current levels for a bit, but they won’t breach the highs we’ve seen in the last week or two,” said Richard Flax, chief investment officer at European digital wealth manager Moneyfarm. “That’s underpinned by slowing inflation and signs of a slowdown in the US economy.”
Travel and leisure shares surged the most among sectors, while miners and autos rallied after a Bloomberg News report that Beijing was mulling raising its budget deficit for 2023 and issuing additional debt for infrastructure projects. Luxury companies, including LVMH and Hermes International also rose, with the former reporting third-quarter sales after close of trade on Tuesday.
Among individual European movers, EasyJet Plc shares gained following comments in French newspaper Les Echos from its chief executive officer that the airline was benefiting from a resurgence in travel demand. Ubisoft Entertainment SA fell following a video game delay.
The region’s stocks are attempting a recovery this month following two straight months of declines. However, geopolitical conflict in the Middle East and worries about higher-for-longer interest rates have kept risk appetite subdued.
Frédérique Carrier, head of investment strategy for RBC Wealth Management in the British Isles and Asia, said that while European equity valuations are looking attractive following six months of underperformance, the weaker backdrop is a concern.
“Despite this very attractive valuation, we continue to recommend an underweight for European equities because we think that this weakening of the macro environment is not yet reflected in earnings, which are at risk of headwinds and downgrades,” Carrier said. “And that would really limit the region’s ability to outperform.”
Data from Citigroup Inc. also showed futures positioning in the Europe remains moderately net short. The Euro Stoxx 50 has the most bearish positioning among the markets tracked by strategists including Chris Montagu.
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