Rally in Banks Spurs More Gains in European Stocks Ahead of ECB

European Stocks Gain for a Second Straight Day

European stocks capped their biggest back-to-back gains since the U.S. election as banks jumped ahead of this week’s European Central Bank meeting and utilities climbed on a German court ruling.

The Stoxx Europe 600 Index climbed 1 percent at the close, with banks surging the most since June on optimism of more stimulus from the ECB. Italian lenders UniCredit SpA and Mediobanca SpA climbed 9.9 percent or more.

  • “Optimism about banks is driving markets in Europe firmly higher, on expectations that some sort of bail-in for Italian institutions is on the cards,” Chris Beauchamp, a market analyst at IG in London, wrote in a note. “This would provide a real boost to risk appetite.”
  • Stoxx 600 Banks index closed at its highest level since January, with Italian lenders sending the FTSE MIB Index up the most in almost nine months. ECB is likely to continue its quantitative-easing program for at least another six months at the current pace when officials meet Thursday, strategists said.
  • Power producers RWE AG and EON SE climbed at least 2.4 percent after a top German court ruled they’re entitled to compensation for rights they lost because of the government’s decision to exit from nuclear energy.
  • The gains in banks and utilities as miners declined signaled a recent rotation out of so-called defensive sectors and into shares seen benefiting from economic growth is easing.
  • It’s too late to chase the rally in European cyclical shares given extreme readings on a number of metrics, Deutsche Bank AG’s European equity strategists including Sebastian Raedler wrote in a note. Such shares have outperformed those deemed more immune to economic cycles by 24 percent since a trough in early July, the sharpest bounce since 2010, they wrote.
  • Adding to equity bullishness, a weekly index compiled by Citigroup Inc. showed he number of analyst upgrades to global earnings estimates exceeded downgrades by the biggest margin since April 2011.
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