Rift Forms in European Stocks as Bank Gains Fail to Lift Market

  • Citigroup upgrades lenders, saying they’re cheap vs U.S.
  • Telecommunication, real estate, utility shares decline

European Stocks Decline for a Second-Straight Day

Speculation about the future of European Central Bank stimulus is creating a rift in the region’s equity market.

While lenders posted their biggest three-day gain in a month following a Bloomberg report that the European Central Bank has had discussions about how to end its asset-purchase program, the Stoxx Europe 600 Index fell for a second day. A winding down of stimulus measures could bring respite to the beleaguered industry after concerns about profitability in a low-rate environment turned them into this year’s worst performers.

“We’ve come to the conclusion that the ECB thinks it’s not worth going deeper into negative interest rates, so that will at least stabilize rates,” said Benno Galliker, a trader at Luzerner Kantonalbank AG in Lucerne, Switzerland. “It’s been beneficial for the financial sector, especially European banks.”

The ECB is assessing the future of its quantitative easing, and minutes of its September gathering showed policy makers remain committed to doing what’s needed to revive inflation. While President Mario Draghi has pledged to extend the program if needed, he has ordered a review of its rules and an informal consensus has built among officials that purchases will be eventually be tapered rather than stopped suddenly.

Separately, a report showed German factory orders jumped more than projected, while a Citigroup Inc. index indicates that recent economic data have beaten forecasts.

The Stoxx 600 slid 0.4 percent, reversing an advance of as much as 0.4 percent. The Stoxx 600 Banks Index added 0.6 percent, taking its three-day gain to 2.9 percent. On Wednesday, the lender’s gauge rallied 1.4 percent, while the broader benchmark fell 0.6 percent, marking the biggest performance gap since August.

Citigroup upgraded lenders’ shares, saying that risks in Europe appear to be more specific to companies than systemic, and pointing to their low valuations relative to American peers. The Stoxx 600 Banks Index’s valuation of 10.5 times estimated earnings is about 13 percent lower than that of the KBW Bank Index, data compiled by Bloomberg show.

UniCredit SpA climbed 2.3 percent after Il Messaggero said that Amundi SA is ready to offer 4 billion euros ($4.5 billion) for its Pioneer Global Asset Management SpA unit -- more than previously reported. CaixaBank SA led an advance in Spanish lenders, while France’s Societe Generale SA gained 2.2 percent. Deutsche Bank AG was little changed after an audit commissioned by Germany’s regulator showed it mismarked dozens of transactions on its own books. It’s rebounded 14 percent from its record low last week.

The divergence between banks and the broader market is unusual, as the two have moved in lockstep this year more than at any other time since 2007. That’s even as lenders’ weighting in the Stoxx 600 is near a record low. Last month, concern about Deutsche Bank hampered a rebound that lifted the Stoxx 600 as much as 14 percent from the June low.

Real estate, telecommunication and utility companies fell the most in the Stoxx 600 on Thursday as the bond proxies were hurt by the prospect of central banks becoming less accommodative. EasyJet Plc sank 6.9 percent after reporting its first annual profit decline since 2009 as terror attacks hurt demand and the weaker pound inflated foreign-currency costs.

Among stocks rising, Osram Licht AG surged 10 percent after a report that a Chinese company is planning to bid for the German light-bulb maker by mid-October. Dialog Semiconductor Plc rallied 7.3 percent after the Apple Inc. supplier reported higher preliminary sales than forecast. BTG Plc climbed 5.7 percent after the drugmaker said revenue will top expectations, based on current foreign-currency rates.

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