MW: Italian auction, Fed send Europe stocks higher
E.ON rises after earnings, Home Retail Group jumps on upgrade
By Sara Sjolin, MarketWatch
LONDON (MarketWatch) — Financials led European stock markets higher on Wednesday after a broadly positive stress-test result for U.S. banks and upbeat comments from the Federal Reserve, while borrowing costs fell at an Italian debt auction.
The Stoxx Europe 600 index XX:SXXP +0.47% rose 0.6% to 271.23, adding to Tuesday’s gains when the index reached the highest level since late July.
“This rally is premature trading as investors think the U.S. will drag Europe out of misery in six months from now. The issue is still that southern Europe will not be drawn out of misery for the next two to three years, because they had to cut so much,” said Christian Tegllund Blaabjerg, chief economist at FIH Erhvervsbank. “Some of the austerity measures will be postponed because you can’t cost-cut your way back to prosperity.”
Posting the biggest gain in Europe, E.ON AG, DE:EOAN +6.71% rallied 6.7% after reporting its first loss ever, but saying that profit will rise in coming years.
Deutsche Bank AG DE:DBK +3.18% added 3.1% and Commerzbank AG DE:CBK +2.50% was 2.2% higher, helping lift the DAX 30 index DX:DAX +1.17% 1.2% to 7,078.49.
The broader European markets trimmed gains across the board in afternoon trade after U.S. Federal Reserve Chairman Ben Bernanke said in a video-taped speech that the economic recovery has been “frustratingly slow”.
However, stocks were also supported by Fed announcements as the central bank Tuesday kept its interest rates at record lows and acknowledged improvement in the economy, while giving few clues on further quantitative easing.
Separately, after the U.S. market closed, the Fed released its bank-stress test and said 15 of 19 banks have enough capital to withstand a crisis. Citigroup Inc. C -3.79% was among the banks that came up short. U.S. stock futures pointed to a marginally higher open on Wall Street.
U.S. stock markets opened slightly higher on Wall Street.
“This should serve as inspiration to Europe to take bad assets off the bank’s balance sheets like the U.S. did,” Blaabjerg said.
“Currently, European banks are trading at lower levels (than U.S. banks) because they still have bad assets on their balance sheets and down the line it would enhance the banks get rid of the,. Credit supply is increasing in the U.S., but is, at the best, only stable Europe,” he added.
However, Credit Suisse Group AG CH:CSGN +5.55% CS +2.04% advanced 6.1%, ING Groep NV NL:INGA +3.70% took on 3.3% and KBC Group NV BE:KBC +5.18% added 3.8%.
Spain’s banks, Banco de Sabadell SA ES:SAB +5.91% up 6.4% and Bankinter SA ES:BKT +4.10% , 4% higher helped lift the Ibex 35 index XX:IBEX +0.59% 0.6% to 8,428.60.
Banca Monte dei Paschi di Siena SpA IT:BMPS +1.87% gained 1.7% in Italy, while Intesa Sanpaolo SpA IT:ISP +0.80% took on 0.8%. The FTSE MIB index XX:FTSEMIB +0.43% gained 0.4% to 16.870.72.
