LONDON (MarketWatch) — European stocks jumped on Friday, as investors cheered reports that central bankers stand ready to soothe financial markets if Greek elections over the weekend trigger further turmoil and credit freezes.
The Stoxx Europe 600 index XX:SXXP +0.97% rose 0.5% to 243.12, on track for a 0.5% weekly gain.
Swedish retailer H&M Hennes & Mauritz AB SE:HMB +2.09% helped lift the index, rising 1.7% after second-quarter sales beat market expectations. H&M defies bleak conditions as sales rise
For the broader stock markets, banks sent indexes higher on hopes that central bankers will react if the Greek parliamentary election on Sunday creates further financial instability or a credit crunch. Reuters reported late Thursday that central banks are prepared to provide liquidity in case of severe market tension, citing Group of G-20 officials. Central banks to act on bad Greek outcome: report
Meanwhile, European Central Bank President Mario Draghi said in prepared statements Friday morning that the “Eurosystem will continue to supply liquidity to solvent banks where needed.” Draghi: ECB stands ready to supply liquidity
Greek election
The Greek election on Sunday is widely perceived as a turning point in the euro-zone crisis, as markets speculate that a victory for antiausterity party Syriza could lead to Greece leaving the currency bloc. See: Polarized Greece girds for coalition or euro exit
“The costs of a potential near-term Greek exit are too high for either Greece or the euro area. A disorderly exit would likely lead to a massive run on bank deposits, a meltdown of the Greek banking system and further aggravation of Greece’s large economic downturn,” analysts at Barclays Research said in a note.
“For the euro area, the main cost would be contagion, which is literally incalculable because it depends in large part on ‘psychological’ responses to the exit. But the risks are potentially enormous.”
The Athens General Index GR:GD +1.85% soared 10.1% on Thursday following unofficial polls pointing to a victory for the pro-austerity New Democracy party. The index lost 0.7% to 546.41 on Friday.
Koen de Leus, strategist at KBC Securities, said stock investors will be watching the election results closely and it could be a “blood bath” for European stocks if Syriza wins. Especially cyclical stocks like energy firms and base material companies would be hurt, he pointed out.
“It’s a big risk to take positions ahead of the election. If Syriza wins you’ll see markets going down 5% in the beginning, “ he said. “But a catastrophe will be avoided because of interventions from central banks”.
“I’m still hopeful for solutions, but nothing will be solved after the election. Whether New Democracy or Syriza win the Greece problem isn’t over and the country still has huge austerity measures to follow up on.”
European shares shrug off downbeat data from the U.S., where Empire State manufacturing index declined sharply to 2.3 in June from 17.1 in May. June Empire State index retreats to 2.3
U.K. banks rally
In the U.K., banks were further boosted by a speech late Thursday from Chancellor of the Exchequer George Osborne, saying that the Bank of England will activate an emerging lending program under which auctions of short-term sterling liquidity can be held at any time. He also said the Treasury will provide cheap funding for banks if they boost lending to British households and companies. Osborne: BoE ready to activate emergency lending
Royal Bank of Scotland Group PLC UK:RBS +7.93% RBS +8.81% jumped 7.8%, Lloyds Banking Group PLC UK:LLOY +5.21% LYG +4.89% rose 4.2% and Barclays PLC UK:BARC +4.18% BCS +3.96% added 3.8%.
The FTSE 100 index UK:UKX +0.22% gained 0.2% to 5,479.13, further buoyed by oil firms. Royal Dutch Shell PLC UK:RDSA +1.41% UK:RDSB +0.81% RDS.A +1.96% RDS.B +1.59% advanced 1.1% and BP PLC UK:BP +1.63% BP +1.09% climbed 1.4%.
Spanish stocks rose and bond yields eased after a week in the spotlight. The IBEX 35 index XX:IBEX +0.34% took on 0.2% to 6,710.20. Iberdrola SA ES:IBE +2.70% added 2.8% and Banco de Sabadell SA ES:SAB +1.21% rose 2%.
Yields on 10-year Spanish government bonds ES:10YR_ESP -0.50% fell 2 basis points to 6.88%, after inching closer to the keenly-watched 7% level on Thursday. A basis point is 1/100 of a percentage point.
In France, most stocks were also trading in positive territory, with financials and Total SA FR:FP +1.63% TOT +1.51% , up 1.5%, providing support. Insurance firm AXA SA FR:CS +3.99% shot up 3.4%, while bank Société Générale SA FR:GLE +4.11% added 3.3%. The CAC 40 index FR:PX1 +1.82% traded 1.3% higher at 3,072.67.
Food retailer Carrefour SA FR:CA +4.93% rose 4.9% after announcing it will sell its stake in its Greek unit to Marinopoulos, its partner in Greece. Carrefour to sell Greek unit stake to Marinopoulos
German stocks were moving higher, as car makers partly reversed recent losses. Daimler AG DE:DAI +1.42% gained 1.2% and Volkswagen AG DE:VOW +1.28% DE:VOW3 +1.84% moved 1.9% higher. The DAX 30 index DX:DAX +1.48% traded 1% higher at 6,200.36.
Sara Sjolin is a MarketWatch reporter, based in London.
