Europe: Oil stocks and Ocado buoy equities

[LONDON] European shares rose on Thursday to a fresh 3-1/2 month high as oil stocks rallied and online supermarket Ocado shot up after it signed a game-changing deal in the United States.

The pan-European Stoxx 600 ended up 0.7 per cent, while Italy's benchmark index bounced 0.3 per cent following heavy losses in the previous session on concerns that a new government could relax fiscal discipline.

Italian stocks had tumbled more than 2 per cent on Wednesday after a leaked draft coalition programme indicated that the parties planned to ask the European Central Bank to forgive 250 billion euros (S$397 billion) of Italian debt.

"We've got to keep a very close eye on the 5-Star Movement ... and if they're going to try to put their foot down in any way," said Jasper Reimers, market analyst at Vertex Capital Group.

Even though Italian banks have gained nearly 10 per cent so far this year, Reimers was wary of the sector.

"Not just Italian (banks), there are Portuguese and Spanish as well, the stuff we are very, very bearish on. It's not something that we would want to be putting long-term money into," Mr Reimers added.

Britain's FTSE 100 rose 0.7 per cent to a new record high, shrugging off a rise in sterling following a report late on Wednesday that Britain will tell Brussels it is prepared to stay in the European Union's customs union beyond 2021. Prime Minister May insisted that Britain was leaving the EU customs union, however.

Shares in online supermarket Ocado surged 44 per cent to an all-time high after the company signed a deal with US retailer Kroger Co to use Ocado's technology for grocery deliveries in the world's biggest market.

"The short sellers were hoping Ocado wouldn't deliver on its international expansion plans. That position now looks like a badly busted flush," said Laith Khalaf, senior analyst at Hargreaves Lansdown.

"It's probably no coincidence that a number of deals have been flushed out since Amazon announced a takeover of Whole Foods last summer," Mr Khalaf added.

Altice jumped 12 per cent after its French unit showed the first signs of recovery in the first quarter, while French waste and water group Suez rose 3.1 per cent after higher waste volumes boosted its first-quarter core earnings.

Shares in Maersk, broadcaster RTL and Royal Mail all fell between 7.1 and 8.9 percent after giving updates.

Overall, European earnings have seen decent growth in the first quarter, though not on a par with the United States.

Over 80 per cent of MSCI EMU firms have now given updates, and Q1 earnings growth is clocking in at 13.7 per cent year-on-year in dollar terms, according to Thomson Reuters.

Shares in British bookmakers also came under pressure after the UK government cut the top stake on fixed-odds betting terminals from 100 pounds to two. William Hill recovered all losses to end 4.2 per cent higher, while both GVC and Paddy Power Betfair also turned positive.

Oil stocks continued to gain, sending their sectoral index up 1.5 per cent to its highest close since July 2014. Shares in oil majors Royal Dutch Shell, Total and BP all rose between 1.4 and 1.9 per cent.

Oil prices climbed above US$80 a barrel for the first time since November 2014 on concerns that Iranian exports could fall because of renewed US sanctions, reducing supply in an already tightening market.

REUTERS