Europe: Lenders lead European stocks to best monthly jump since October

[LONDON] European shares extended their biggest monthly gains since October, with banks leading the gains amid earnings results.

Barclays Plc jumped 5.5 per cent as fixed-income trading revenue outperformed European rivals and it said the non-core unit will weigh less on profit in 2017. Banco Bilbao Vizcaya Argentaria SA rose 3.7 per cent after reporting quarterly earnings that beat analysts' estimates.

France's Natixis SA gained 7.6 per cent as its profit and revenue topped projections. Italy's Banca Monte dei Paschi di Siena SpA surged 6.3 per cent after receiving a proposal to turn around the the ailing lender.

The Stoxx Europe 600 Index climbed 0.7 per cent at the close of trading in London, taking its monthly rise to 3.6 per cent. The gauge rebounded after getting dragged down by a decline in crude prices and lenders on Thursday. Stress-test results are due after the market close.

"The main fear for 2016 was a possible recession for the second half, and there has been no evidence in that direction so far," said Guillermo Hernandez Sampere, head of trading at MPPM EK in Eppstein, Germany. His firm oversees 250 million euros (S$374 million).

"It took some time to understand that the spirit was much worse than the actual situation. A lot of companies have beaten or even increased their forecasts."

European lenders posted their best month since February 2015, rebounding 6.1 per cent after their worst losses since October 2008 in June. The moves in Italian banks took the nation's FTSE MIB Index up 2 per cent on Friday, the biggest gain in western-European markets.

That's even as data showed a slowdown in euro-area growth to 0.3 per cent in the second quarter, and a rise in Italy's jobless rate in June. Separately, the region's inflation unexpectedly accelerated to 0.2 per cent in July, the strongest since January.

The Stoxx 600 briefly pared gains after Federal Reserve Bank of San Francisco President John Williams said the central bank will raise rates over the next couple of years, while data on the US economic expansion and sentiment missed estimates.

Despite the strong advance this month, July was marked by record outflows from European stock funds and thin volume, indicating a lack of conviction in the rally. The Stoxx 600 remains 1.3 per cent below its level on the day of the UK vote on European Union membership, while equities from the US and Asia have recovered.

Among other stocks moving on earnings on Friday: Electricite de France SA surged 6.4 per cent as its earnings beat projections and it maintained its 2016 objectives, even as the British government cast doubt on the future of a nuclear- power project in the UK.

ArcelorMittal rallied 5.6 per cent after posting its highest quarterly profit since 2014. L'Oreal SA dropped 2.7 per cent after reporting sales that missed analysts' estimates amid worsening conditions in its home market, France. Foxtons Group Plc tumbled 11 per cent after posting a decline in first-half revenue and saying second-quarter results showed a sharp contraction.

In other corporate news, Anheuser-Busch InBev NV climbed 4.6 per cent and SABMiller Plc advanced 2.1 per cent. The UK brewer's board unanimously backed an improved US$104 billion takeover offer, paving the way for the biggest acquisition yet in the beer industry and capping a tumultuous week in which AB InBev bowed to pressure to sweeten its offer.

Mediaset SpA sank 8.3 per cent as the Italian media company rejected an alternative proposal for an alliance with Vivendi SA, after a conflict that broke out suddenly this week. Vivendi was little changed.

BLOOMBERG