European Shares See a Boost with Banks and Commodity Stocks

On Monday, European shares saw a boost, thanks to commodity-linked and bank stocks. Meanwhile, investors are keeping an eye out on the details of a meeting of the European Central Bank (ECB) on Thursday and the release of US inflation data on Friday. There was a 0.8% rise in the STOXX index comprising of 600 European companies after it declined 0.9% in the previous week. This fall was attributed to worries about economic growth, as prices continue to rise and there is a possibility of monetary policy tightening by most central banks.

There was a 1.4% increase recorded in bank stocks on Monday, as they tend to rise when interest rates are high. There was also a 2% increase in miners, while a rally also occurred in luxury stocks. Most of the demand for these two sectors comes from China and this boost was recorded because virus curbs were eased in Shanghai and Beijing by the authorities. This morning saw buying pick up because of these easing virus curbs in China, as well as the strong data about the US labor last week. These helped relieve some worries that the aggressive monetary policy tightening of the US Federal Reserve could drive the economy into recession.

There was also a 1.2% jump in the FTSE 100 of London, as it opened after a long weekend. Later on Monday, there will also be a confidence vote conducted for Prime Minister Boris Johnson, after a report that alcohol-fueled parties had been conducted in Britain when the country was under strict lockdowns due to COVID-19. Market analysts said that participants were prepared for Johnson losing, as this would result in a new leader who can focus on the prominent issues like the rising cost of living. The ECB is scheduled for a meeting this Thursday.

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It is expected that the central bank will announce a stop of its bond purchasing activity and give hints about the speed and magnitude of the increase in interest rates. Last week, numbers showed that inflation in the Eurozone reached record highs, which opened up the possibility of the ECB hiking up interest rates. Investors are pricing in a big rate hike of about 50-basis points in the central bank’s policy meeting scheduled for October this year. As for US inflation data, it is due for release this Friday and a rise is expected.

The US Federal Reserve has already confirmed that interest rates will go up this month and the next before it will pause to evaluate economic data. But, if May shows high inflation numbers, the rate hike cycle could also be extended. As for stocks, there was a 0.4% increase in Melrose Industries Plc, as the auto parts supplier announced the sale of its Ergotron unit for a price of $650 million. There was a whopping 69.3% decline in Clontarf Energy Plc., after Western Gas announced that it had not found any hydrocarbons in its exploration off Western Australia.

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