European Stocks Rebound as Investors Speculate on Policy Help

  • EU leaders meet in Brussels to discuss fallout of U.K. vote
  • Nestle advances after new chief executive officer named

European Stocks Rebound in First Gain Since Brexit

European stocks advanced, snapping their worst two-day losing streak since 2008, as investors speculated that policy makers may take action to shore up markets after the post-Brexit rout.

The Stoxx Europe 600 Index rose 2.6 percent to 316.7 at the close of trading. European stocks extended their two-day loss to 11 percent yesterday amid growing uncertainty surrounding the fallout from Britain’s shock vote to leave the European Union. The FTSE 100, which lost 5.6 percent over the same period, also recovered 2.6 percent today. The volume of European shares changing hands was 60 percent greater than the 30-day average, while for British equities, it was 74 percent higher.

“Stocks are rebounding on the expectation that there will be a coordinated intervention by central banks,” said John Plassard, a senior equity-sales trader at Mirabaud Securities in Geneva, which oversees 34 billion Swiss francs ($35 billion) in assets. “What central banks can do is put confidence back in the market by telling everyone that they are here and ready to act. If we don’t get that sort of support, we’ll see further declines.”

EU leaders gather in Brussels today for the start of a two-day European Council summit to discuss Britain’s decision to leave the bloc. President Mario Draghi said last week that the European Central Bank is ready to intervene, while Bank of England Governor Mark Carney said the lender can provide an extra 250 billion pounds ($334 billion) through its existing facilities.

Investors will also look to the Federal Reserve’s response after Chair Janet Yellen warned of the damage a Brexit would cause. Fed Funds futures indicate little chance the U.S. central bank will raise interest rates by February, but a 17 percent likelihood of a cut as soon as September. Prior to the U.K.’s referendum, there was zero prospect of a reduction and a 52 percent chance of an increase.

It’s been a wild ride for European equities in the past few weeks, with the Stoxx 600 falling to its lowest level since February before rebounding 7.8 percent in the five days through last Thursday as volatility surged in the run-up to the vote. The index is now heading for an 8.9 percent decline in June, it’s worst monthly performance since August 2011.

Lloyds Banking Group Plc contributed most to gains on a gauge of European lenders. Unione di Banche Italiane SpA added 9 percent, leading Italian banks higher, as the nation’s government sounded out regulators on ways to shore them up after their shares were hammered following the Brexit victory. Hargreaves Lansdown Plc and Aberdeen Asset Management Plc led a gauge of financial-services companies to the best performance on the Stoxx 600, after yesterday falling the most.

Among stocks moving on corporate news, Nestle SA advanced 3.3 percent after naming Ulf Mark Schneider as successor to Chief Executive Officer Paul Bulcke, handing the reins of the world’s biggest food company to an outsider for the first time in nearly a century. 

G4S Plc jumped 8.1 percent, the most since October 2011, after Credit Suisse Group AG upgraded the security company’s rating to similar to buy from neutral, citing benefits from a weaker pound and the stability of its business. Ocado Group Plc surged 8.6 percent as Goldman Sachs Group Inc. recommended buying the shares after the retailer reported continued sales growth.

Shawbrook Group Plc tumbled 14 percent after saying it will take an additional impairment charge of 9 million pounds ($12 million) in the second quarter tied to lending “irregularities” at its business finance division.

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