European Stocks Erase Post-Brexit Plunge on Earnings Optimism

Updated on
  • Nestle rises to all-time high after Societe Generale upgrade
  • Almost all western-European markets advance; CAC 40 up 1.2%

Investors Turn Backs on German DAX

Exactly seven weeks after the British referendum to leave the European Union, the region’s stocks erased their post-vote slump, boosted by better-than-forecast earnings from Zurich Insurance Group AG to KBC Group NV.

Zurich Insurance added 4.5 percent after saying profit fell less than projected. Belgian lender KBC advanced 5.2 percent after also cutting its forecast for 2016 loan-loss provisions in Ireland. RWE AG climbed 4.1 percent after the German utility said its quarterly loss narrowed. Energy and commodity producers, which started the day lower, reversed their declines as oil climbed.

The Stoxx Europe 600 Index rose 0.8 percent, reversing an earlier drop to rise for the sixth time in seven days. It extended gains in the last hour of trading, closing at its highest level since May and above its 200-day moving average. Optimism that central banks will support growth and a better-than-forecast jobs report in the U.S. have helped fuel the recent gains, with volatility expectations falling to the lowest levels in a year.

“With a lack of negative news-flow the market will continue to rise,” said Guillermo Hernandez Sampere, the head of trading at MPPM EK in Eppstein, Germany. “The old problem of finding yield is supportive for the stock market, and we already had our yearly shock in the first part of the year. With low volatility and trading volumes it’s more difficult for bears to short the market. This is more a market for the bulls and I’m one of them.”

The volume of Stoxx 600 shares changing hands was about a third lower than the 30-day average. While bond yields reach record lows, investors in companies from the benchmark gauge have a dividend rate of 3.6 percent. On a price-earnings ratio basis, its valuation of 15.2 times estimated profits is approaching this year’s high.

Among other stocks moving on corporate news on Thursday, Henkel AG & Co. rallied 5 percent as the maker of adhesives and Persil washing powder posted profit that beat projections and said an improvement in margins for the full-year will go beyond its initial target. Swiss Life Holding AG rose 2.8 percent after reporting an increase in first-half earnings.

K+S AG, Europe’s biggest potash producer, sank 5.6 percent after saying it expects lower earnings in 2016. U.K. insurer Old Mutual Plc lost 3.8 percent after reporting earnings that missed analyst estimates and saying the rest of the year will be fraught with challenges.

Here is a snapshot of the moves in major western-European stock indexes:

  • The U.K.’s FTSE 100 Index reversed an earlier decline to rise 0.7 percent, with Royal Dutch Shell Plc recovering as oil prices gained.
  • Germany’s DAX Index advanced 0.9 percent, with Henkel and RWE leading gains. Siemens AG rose to its highest price since 2007.
  • France’s CAC 40 Index added 1.2 percent. Construction company Vinci SA, up 2.9 percent, closed at its most expensive since 1998.
  • The Swiss Market Index climbed 1.1 percent, boosted by gains in Zurich Insurance and Swiss Life. Nestle SA climbed to a record after Societe Generale SA recommended buying the stock.