European stocks extend gains on commodity, banking boost

November 3, 2020: European shares extended their recovery rally on Tuesday with investors putting coronavirus worries on the back burner for now, as attention turned to the U.S. presidential election.

The pan-European STOXX 600 index rose 1.2%, bouncing off five-month lows hit last week on worries over new partial lockdowns across the continent.

Growth-sensitive cyclical sectors such as oil and gas , miners, banks and automakers led the rally - all rising more than 2%.

Heading into Election Day, Republican President Donald Trump trails Democratic rival Joe Biden in national polls, but Trump is close in enough swing states to possibly piece together the votes needed to win the presidency.

A Biden win is widely considered supportive for European equities on expectations of a bigger stimulus package and better trade ties with the United States.

"It's reflation trade for European stocks," said Christian Stocker, UniCredit's lead equity sector strategist.

"Currently, the market is betting on a Biden win. Under a Biden presidency, the U.S. economy should be more supportive for equity markets - an economy with more stimulus programmes will be perfect for the outperformance of cyclical sectors."

However, Stocker does not expect the gains to last long as coronavirus cases increase at an alarming rate in Europe, pushing major economies like Germany, France and the United Kingdom to reimpose tighter restrictions and causing economists to cut fourth-quarter economic growth expectations.

The STOXX 600 saw its worst weekly performance since mid-June on Friday, but upbeat factory data from major world economies helped markets stabilise on Monday.

Among individual stocks, French bank BNP Paribas gained 5.5% as a surge in currency and commodity trading helped it beat quarterly profit expectations.

Fashion house Hugo Boss jumped 6.7% after it reported a return to profitability in the third quarter and said it was focused on driving a recovery of its business online and in China.

Shares in German meal-kit delivery company HelloFresh , which has more than doubled in value this year due to strong demand on the back of the pandemic, fell 3.5% after quarterly results.

Bayer slipped 1.0% as it took impairment charges of 9.25 billion euros ($10.79 billion) and warned of higher costs from its settlement over claims that its Roundup weedkiller causes cancer.

Reuters