European Stocks Surge After Bounce in Oil Spurs Risk-On Appetite

(Bloomberg) -- European shares rallied on Wednesday after tumbling the most in a month in the previous session, as reassuring earnings reports in the tech sector as well as a recovery in the oil price boosted investor sentiment.

The Stoxx Europe 600 Index closed up 1.8%, after dropping 3.4% on Tuesday. Oil and mining shares were the biggest advancers, benefiting from Brent’s recovery from a 2002 low. Tech shares also outperformed, with STMicroelectronics NV climbing 8.4% and Ericsson AB gaining 4.8% after posting results.

European equities surged to a bull market on Monday before slumping in the following session amid concerns that an unprecedented crash in oil prices could be a sign that the hit to the global economy from the pandemic will be far worse than anticipated, even as a number of major economies move to ease lockdowns. However, the market recovery on Wednesday signaled that commodity losses might have been overdone and investors focused on corporate earnings.

“I’m a bit surprised by this positive mood,” said Alberto Tocchio, chief investment officer at Colombo Wealth SA. “Oil is the center of the attention as it is a proxy for global demand and more specifically industrial production. I don’t think we are out the woods yet for equity markets, it will pay to be more patient.”

Tocchio has started selling some long-dated put options on oil stocks as he believes that oil prices will eventually recover and “good” energy companies will be able to bounce back sooner rather than later. The European oil sector is down 37% in 2020, while the Stoxx 600 has lost 21% over the same period

In negative earnings news, Kering SA tumbled 4.9% today after the French fashion company gave a cautious assessment of luxury sales in China.

©2020 Bloomberg L.P.