Europe Shares Rebound as Investors Consider Draghi Rout Overdone

European Stocks Bounce Back
  • Vonovia pushes real estate index to biggest gain on Stoxx 600
  • Electrolux tumbles as GE pulls out of appliance-unit sale

European stocks advanced after their worst week since August as investors considered the European Central Bank-induced slide overdone.

The Stoxx Europe 600 Index closed 0.5 percent higher, its biggest increase since Nov. 26. The equity benchmark pared earlier gains of as much as 1.6 percent as a slide in oil prices dragged energy companies lower. Germany’s DAX Index posted the best performance among western-European markets as carmakers jumped, recouping 1.3 percent after last week’s 4.8 percent slide. France’s CAC 40 Index added 0.9 percent.

"It’s a rebound -- everybody thought the news from the ECB was disappointing, the markets expected much more but the reaction was overdone,” said Soeren Steinert, associate director for equities trading at Quoniam Asset Management in Frankfurt. “The market seems to be fine now.”

The Stoxx 600 is up 9.8 percent from its September low, after having risen as much as 14 percent on Nov. 30 amid expectations for more ECB support and as investors accept the likelihood of higher U.S. interest rates. While last week’s ECB action disappointed, the subsequent selloff didn’t faze strategists from UBS Group AG to JPMorgan Chase & Co., who are among at least five banks keeping their bullish forecasts on European stocks amid lower valuations.

Disillusionment with ECB stimulus measures and the Organization of Petroleum Exporting Countries’ output strategy sent the Stoxx 600 down 3.4 percent last week, taking its valuation to about 16 times estimated earnings from as high as 16.5 on Nov. 30. That compares with about 17.7 times for the Standard & Poor’s 500 Index.

Better-than-expected jobs data that fueled a U.S. rally on Friday boosted investor optimism that the world’s biggest economy is strong enough to cope with higher borrowing costs. Traders are pricing in a 76 percent chance of a December liftoff. 

“We see the interest rate hike as done and priced into the market,” said Steinert.

Vonovia SE rose 3.4 percent, pushing a gauge of real estate companies to the best performance of the 19 industry groups on the Stoxx 600, after Germany’s cartel office cleared the possible takeover of Deutsche Wohnen AG. Daimler AG and BMW AG rose at least 1.4 percent, leading auto-related shares higher. 

Airbus Group SE added 2.9 percent after saying it won more than 1,000 orders net of cancellations in the year through November.

Electrolux AB tumbled 13 percent after General Electric Co. abandoned plans to sell its appliance business to the Swedish company amid a legal battle to get the acquisition approved by competition regulators.

BP Plc and Royal Dutch Shell Plc dragged a measure of energy stocks to the biggest drop on the Stoxx 600 as oil slid to the lowest level in more than six years amid speculation a record global glut will be prolonged as OPEC effectively abandoned its strategy of limiting production to control prices.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE