European Stocks Surge to February High on Moderna Vaccine Study

(Bloomberg) -- European stocks extended last week’s rally after a positive readout from Moderna Inc.’s coronavirus vaccine study further fueled risk appetite, while Spanish banks advanced upon deal activity.

The Stoxx Europe 600 index closed up 1.2% to its highest since Feb. 26. Previously beaten-down cyclical sectors such as banks, automakers and energy shares gained the most after Moderna said its Covid-19 vaccine was 94.5% effective in a preliminary analysis of a large, late-stage clinical trial. Pandemic winners such as HelloFresh SE and Ocado Group Plc declined.

Europe’s November rally is regaining momentum after losing steam at the end of last week, with the bounce also helped by U.S. President-elect Joe Biden’s advisers indicating that a national lockdown isn’t likely. Economically sensitive cyclicals and cheaper value shares have surged since last Monday after better-than-expected results of Pfizer Inc. and BioNTech’s vaccine trial.

“We now have a second vaccine with excellent efficacy, increasing the chances that we will have enough supply to protect people in a matter of months,” said Maxim Jacobs, managing partner and director of research for Edison Group. The shot is easier to store than the Pfizer-BioNTech candidate and appears from the trial results to be safe, he said.

European bank shares also got a boost as Spanish lenders rallied after BBVA sold its U.S. unit for $11.6 billion, fueling speculation that it would use the proceeds to target peer Banco de Sabadell SA. Confirmation of potential merger talks between the companies came after the market close. Elsewhere, Vodafone Group Plc jumped after upgrading its full-year profit guidance.

More strategists, including Morgan Stanley, are recommending switching into European cyclicals and cheaper value stocks on the optimism of a vaccine breakthrough and economic bounce.

Next year “should be a more rewarding year for European equities as the region transitions from a Covid laggard to a vaccine winner, enjoying a material rebound in GDP” and earnings growth along the way, Morgan Stanley strategists led by Graham Secker wrote in a note. “We prefer cyclicals to defensives and value over quality as a global reflationary narrative finally gains traction.”

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