Europe Shares Rise With Banks as Investors Speculate on Fed Hike

  • Fed presidents said that at least two hikes may be warranted
  • Burberry retreats after reporting drop in annual earnings

Banks propelled a rebound in European stocks, while investors weighed the possibility of the Federal Reserve increasing interest rates sooner than had been expected.

The Stoxx Europe 600 Index climbed 0.9 percent to 337.58 at the close of trading, after earlier sliding as much as 0.5 percent. Lenders contributed the most to gains on the equity benchmark, led by Lloyds Banking Group Plc and Barclays Plc. Miners posted the worst performance as metals prices retreated.

Expectations for the U.S. central bank to add to last December’s interest-rate increase are starting to build after higher-than-expected consumer-price data, with comments from Fed presidents Dennis Lockhart and John Williams that at least two interest-rate increases may be warranted this year also stoking speculation of a move.

“The signs of an interest rate hike in the U.S. are being seen as an opportunity to add up on European banks by those who are under invested in them,” said Herbert Perus, head of equities at Raiffeisen Capital Management in Vienna. “It’s just a small rally and not a major move. Markets will continue on their sideways path.”

European shares have lost momentum since an April 20 peak as concerns about slowing global growth and worries over central-bank policies resurfaced amid mixed earnings reports. The index has gone almost a month without ending at least 1 percent higher, signaling a lack of triggers to boost shares.

Investors are also awaiting minutes from the Fed’s April meeting, which are due after the close of European markets today. Traders have boosted the probability the central bank will increase rates in June to 16 percent, up from 4 percent earlier this week. The first month with even odds of higher borrowing costs also moved up to September from December.

Goldman Sachs Group Inc. has cut its rating on equities to neutral, warning that stocks won’t be attractive until they exhibit sustained earnings growth. The key risks are a slowdown in China, increased European political uncertainty, falling commodity prices and changes in the Fed’s interest-rate cycle, according to a strategists’ note.

Among stocks moving on corporate news, Burberry Group Plc dropped 2.7 percent after the luxury-goods retailer posted a second straight drop in annual profit and cut its outlook. Sonova Holding AG tumbled 6.4 percent after the Swiss hearing-aid maker’s second-half earnings missed estimates.

Kuka AG jumped 23 percent after Midea Group Co. offered to raise its stake in the industrial-robot maker to become its largest shareholder, valuing the German company at 4.6 billion euros ($5.2 billion).

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