Europe: Stocks advance a second day as investors return to risk

[LONDON] European equities extended Monday's rebound as investors shifted their focus to rapid vaccination efforts and optimism about an economic recovery.

The Stoxx Europe 600 Index added 0.2 per cent by the close in London, with the insurance, construction, mining and media sectors leading the gains. By contrast, the rotation out of frothier technology shares continued. The FTSE 100 Index climbed ahead of Wednesday's UK budget announcement.

Stocks are rebounding after last week's declines that were triggered by a jump in bond yields, although investors remain cautious after China's top banking regulator said he's "very worried" about risks emerging from bubbles in global financial markets.

With the Stoxx 600 still about 5 per cent from its February 2020 record, the path to recovery has turned bumpy. At the same time, the likes of Goldman Sachs Group Inc. favor cyclical and value sectors in a bet on a rapid economic bounce as a result of vaccination efforts.

"Moving forward we will, of course, see the yields rising as the economic picture improves, yet a move backed by optimism is supposed to be soft and sweet, not like a carnage," said Ipek Ozkardeskaya, a senior analyst at Swissquote.

European equities trimmed their gains in the afternoon as US stocks traded lower, led by technology companies. Investors will likely keep a close eye on economic data, such as Friday's US employment report, for clues on policy moves after the recent spike in bond yields.

"We have important data on the economic calendar this week, especially the US jobs data that could shake sentiment yet again," said Ms Ozkardeskaya. "A strong read could well spur 'yield optimism' and wreak havoc in the market."

Among notable movers, HelloFresh SE dropped 6.5 per cent as the meal-kit maker kept guidance unchanged, despite the benefit of extended lockdown measures. Kion Group AG climbed 6.5 per cent after its 2021 profit view beat analyst estimates.

UK equity investors are preparing for Wednesday's budget news after press reports suggested Chancellor of the Exchequer Rishi Sunak will announce an extension to the furlough scheme and more specific support for the housing sector and bruised hospitality trade.

BLOOMBERG