Trump’s Win Boosts Europe Banks as Broader Market Erases Advanceby
Lenders’ valuations at highest since January versus Stoxx 600
Commodity producers rise; Vivendi, Siemens climb on earnings
European lenders got a second-day boost after Donald Trump’s presidential win on speculation his term will lead to increased inflation and an easing of financial rules.
UBS Group AG and Credit Suisse Group AG, which get more than 35 percent of their revenues from the Americas, helped lead the rally that pushed Europe’s banks to their best four-day jump since July. The biggest Swiss lender surged the most since 2011, while Credit Suisse climbed 4.9 percent. A gauge tracking the industry reached its highest level since March, maintaining gains even as a slump in bond proxies such as utilities an real estate companies dragged the benchmark Stoxx Europe 600 Index lower.
Europe’s lenders, which until recently were the year’s worst-performing group in the Stoxx 600, are bouncing back as bond yields rebound from their summer lows, easing concerns over profitability. Trump’s surprise victory added to the optimism, with his promises of public spending fueling bets for higher inflation, while speculation grew that he’ll review the strict capital rules applied during Barack Obama’s administration. Bond-yields rallied, with those on 10-year German debt reaching a six-month high.
“It’s a favorable phenomenon for banks when they do not have yield curves with negative rates,” said Pierre Mouton, a fund manager who oversees about $8.5 billion at Notz, Stucki & Cie. in Geneva, referring to the difference in yields between short- and long-dated bonds, which lenders profit from. “Public spending and measures more or less protectionist will get inflation going. So the rates will increase in the U.S. Since the U.S. bond market guides the rest of the world, there is also a steepening effect on the yield curve in Europe.”
While the benchmark Stoxx 600 erased an advance of as much as 1.3 percent to end the day 0.3 percent lower, the Stoxx 600 Banks Index rallied 2.3 percent. The gauge trimmed its annual slump to 14 percent from as much as 36 percent, pushing the valuation of its companies to about 0.8 times book value, the highest since January relative to the broader market. The volume of Stoxx 600 shares traded on Thursday was about double the 30-day average.
UBS’s 8.7 percent surge sent the shares to their highest prices since the day the U.K. voted to leave the European Union. Credit Suisse, which hit a record low in July, has rebounded 37 percent since then, erasing its post-Brexit referendum slide. Banca Popolare di Milano Scarl and Barclays Plc rallied more than 4 percent, while Deutsche Bank AG climbed 5.6 percent. Italy’s UniCredit SpA added 2.9 percent as it reported earnings that met analyst estimates after boosting capital buffers.
Deepening losses in utilities, real estate shares and consumer companies as bond yields advanced helped reverse what was heading for the biggest Stoxx 600 weekly gain since the rebound that followed February’s selloff. British American Tobacco Plc and Imperial Brands Plc lost more than 4.9 percent, the most since at least 2009, and Nestle SA fell 2.2 percent.
Still, sentiment for the region has improved, after the index went without advances for 11 days, its longest streak since 1994. Fund managers began sending money to Europe’s equity funds again, after a record 38 weeks of outflows, a Bank of America Corp. report citing EPFR Global data showed last week.
Trump’s election boosted commodities as Goldman Sachs Group Inc. said his pledge to revive American infrastructure would lead to gains in metals and gas. That sent European miners further, pushing them to the highest since June 2015. Rio Tinto Group rose 2.6 percent, while Antofagasta Plc surged the most since February. Fresnillo Plc and Randgold Resources Ltd. fell more than 10 percent as demand decreased for gold as a haven.
Some companies mover on earnings news on Thursday:
- French media company Vivendi SA jumped 9 percent after posting profit that beat projections.
- Siemens AG rose 4.6 percent after reporting earnings that topped estimates and saying it’ll spin off its health-care division.
- German chemical maker Lanxess AG advanced 3.2 percent as it increased its annual profit forecast, after efforts to boost efficiency led to better-than-estimated results.
- Engie SA tumbled 7.7 percent after the French utility said earnings this year will be at the low end of its forecast.
- AstraZeneca Plc dropped 3.7 percent as its sales fell more than estimated. Its chief executive officer said Obamacare will be a focal point for change under Trump’s leadership.