European Traders Turn to Banks as Growth Faith Spurs Stock Gain

(Bloomberg) -- The year’s most beaten-down sector in Europe is headed for its best month since early 2015, hitching a ride from the rotation into cyclical stocks worldwide.

Investors have sent shares of lenders including Credit Suisse Group AG, HSBC Holdings Plc and ING Groep NV up more than 10 percent in August. Even amid seasonally-low trading volume and record outflows from the region’s equity funds, bank shares are on track for a second month of gains, supported by earnings that beat analysts’ estimates for the first time in a year.

With European economic data exceeding forecasts for most of the last two months and the Federal Reserve likely to hike interest rates this year, investors are predicting profits at financial firms will improve, according to Simon Wiersma, an Amsterdam-based investment manager at ING Bank NV, which oversees about 26 billion euros ($29 billion).

“The prospect of a little higher rates in the longer term is a good sign of future profits,” said Wiersma. “Investors are relieved the economy is doing fine and think banks will lend more, which should also increase their profits.”

The bank rally on Tuesday helped send the Stoxx Europe 600 Index up 0.5 percent. Most industry groups climbed, while commodity producers bucked the trend as metal prices fell amid a stronger dollar and Citigroup Inc. analysts turned bearish on mining shares. The sector declined the most in eight weeks.

UniCredit SpA rose 2.2 percent on a report that it’s considering selling 20 billion euros of non-performing loans, helping Italy’s FTSE MIB Index climb 1.4 percent, the most among western-European markets. Deutsche Bank AG pushed Germany’s DAX Index up 1.1 percent. Even after a 6.3 percent gain for banks this month, they’re still down 22 percent in 2016.

Fed Chair Janet Yellen’s bullish assessment of the economy last week helped bring forward bets for an increase in U.S. borrowing costs, sending the dollar higher against the euro. Traders are pricing in a 59 percent chance the central bank will act by December. Globally, so-called cyclical stocks are heading for their best two months versus defensives since 2012, with traders no longer panicking about slowing global growth. The Stoxx 600 has gained 0.8 percent this month.

“Global markets have been very correlated lately so there was a bit of pressure coming from the U.S.,” ING Bank’s Wiersma said. “The slightly weaker euro gives some support to European stocks.”

Among other stocks moving on corporate news, D’Ieteren SA jumped 10 percent after the Belgian car distributor reported better-than-expected pretax earnings for the first half of the year and said confidence has improved. Telefonica SA rose 1 percent after people familiar with the matter said the company has revived work on the initial public offering of its infrastructure unit.

Spain’s IBEX 35 Index advanced 0.8 percent, with volume about 25 percent lower than the 30-day average, as acting Prime Minister Mariano Rajoy sought support to take office this week. His allies and opponents will vote on Wednesday. Spain is likely to go to the polls once again this year if the parties fail to reach a settlement by the end of October.

--With assistance from Namitha Jagadeesh To contact the reporter on this story: Roxana Zega in Zurich at rzega@bloomberg.net. To contact the editors responsible for this story: Cecile Vannucci at cvannucci1@bloomberg.net, Sofia Horta e Costa