Europe: Biggest gains for stocks since Macron's first round win

[LONDON] A run higher for energy shares and miners, as well as strong updates from Norwegian lender DNB, and a more dovish tone from US Federal Reserve Chief Yellen, helped drive European shares up on Wednesday, though renewed pain for publisher Pearson weighed on the media sector.

The pan-European STOXX 600 index was up 1.5 per cent, as were euro zone stocks and blue chips , enjoying their best day's gains since April 24, when Macron's first round victory quashed market fears of a protectionist French president.

European shares made early gains and were given a second wind in afternoon trading when Federal Reserve Chair Janet Yellen dampened expectations of more than one interest rate hike this year.

All sectors were in positive territory, with miners, construction and healthcare sectors leading. A slower pace of interest rate raises is positive for equities, which benefit when their yield is relatively higher than other asset classes such as bonds.

Norwegian lender DNB led the banking sector higher, up 5.7 per cent after its second-quarter earnings came in significantly above forecasts, helped by a rise in lending margins and lower losses on its portfolio.

Luxury goods group Burberry was a strong gainer, rising 3.2 per cent after reporting 3 per cent underlying revenue growth in the first quarter, helped by robust demand in mainland China and continuing good performance in its British market.

"(This is) the strongest performance for at least three years in terms of ... same store sales, and also the signs of an underlying rebound in demand in mainland China are very, very promising," Ken Odeluga, market analyst at City Index, said.

Peers Kering and LVMH also rose 2.4 per cent and 0.9 per cent respectively.

Online retailer Zalando gained 4.2 per cent after broker Societe Generale started its coverage of the stock with a"buy" rating, saying that it had the potential to play a much broader role in the future of fashion retailing.

With the European second quarter results season just around the corner, earnings are expected to increase by over 9 per cent from the same period in 2016, which would be a rise of over 6 per cent excluding the energy sector, according to Thomson Reuters estimates.

Strength in oil and metals prices helped lift the heavyweight European energy sector and basic resources, which gained 1.5 and 1.9 per cent respectively.

The cyclical autos sector was led by a 3.1 per cent rise in Valeo shares, which gained after the car parts maker said it was eyeing a sale of a unit to Raicam.

Education publisher Pearson continued its slide from the previous day when it announced plans to sell its stake in Penguin Random House, down around 4.7 per cent as broker downgrades and cuts to estimates rolled in.

Investec, Panmure and Credit Suisse were among brokers revising down their targets for Pearson, with worries around its dividend persisting. "The guidance suggests a dividend of around 15p for 2017, rising to perhaps 18p at the most by 2019.

This implies a dividend yield range of 2.3-2.7 per cent and essentially takes away any yield support for the stock, in our view," analysts at Panmure Gordon said.

Shares in British oil and gas services company Amec Foster Wheeler slumped more than 8 per cent after confirming that Britain's Serious Fraud Office (SFO) was investigating the firm and individuals associated with the business.

REUTERS