Europe: Shares surge as recovery hopes boost cyclicals

[BENGALURU] European shares enjoyed their best day in nearly eight weeks on Monday, with cyclical sectors soaring as an easing of lockdowns and an encouraging report on a potential Covid-19 vaccine boosted hopes of a swifter economic recovery.

Miners leapt 8 per cent, leading Europe's sectoral gains, while automakers, oil and gas and travel and leisure indexes - typically reliant on the health of a global economy that has taken a battering due to the coronavirus crisis - gained between 6.5 per cent and 7.9 per cent.

Germany's auto-heavy DAX surged 5.7 per cent to its highest level in over two weeks, while France's main index rose 5.2 per cent.

The two countries called for the creation of a European Recovery Fund worth 500 billion euros (S$771.5 billion) to help the region quickly exit the crisis.

The single biggest boost to the Stoxx 600 was France's Total, which surged 7.4 per cent after it agreed to buy assets from Energías de Portugal.

Other oil majors BP Plc and Royal Dutch Shell Plc rose nearly 8 per cent, as optimism over output cuts and signs of demand recovery lifted Brent crude to a one-month high.

Giving additional impetus to the rally, US drugmaker Moderna said its experimental Covid-19 vaccine showed promising results in a small early-stage trial.

The pan-European Stoxx 600 rose 4.1 per cent, in its biggest one-day percentage gain since March 24.

"Everything seemed to go right for risk appetite today and that will not likely be story going forward," said Oanda's senior market analyst Edward Moya.

"A vaccine is a gamechanger for the prospects of economic activity to return to pre-virus levels, but that is still months away from being finalised."

Governments and central banks globally have unleashed unprecedented stimulus to prop up the economy, helping the Stoxx 600 recover 27 per cent from its March lows as investors also hope for a gradual return to normal.

Shops, restaurants and hair salons prepared to reopen in Italy on Monday, while other centres of the outbreak such as New York and Spain gradually lifted restrictions.

"Post the strong rally in equity markets from the lows, we believe this economic upturn is already largely priced in," Morgan Stanley's European equity strategist Graham Secker said in a client note.

"We think valuations look full as we see further earnings downgrades as necessary for 2H20 and into 2021."

French automakers Renault SA and Peugeot SA gained 8.7 per cent each after finance minister Bruno Le Maire told a local radio channel the government was hoping to announce a plan within 15 days to help the country's automobile sector.

German conglomerate Thyssenkrupp AG jumped 12.5 per cent after a source told Reuters it was in talks with international peers about consolidating its loss-making steel business.

Ryanair shares surged 15.8 per cent after Europe's largest low-cost carrier announced details of sharp cost cuts and promised a swift return to full capacity and expansion in the aftermath of the Covid-19 crisis.

Among decliners, Norwegian Air Shuttle ASA's shares tumbled 22.3 per cent as the company said its issue of new equity was completed.

REUTERS