European Stocks Have Best Day Since 2008 on Stimulus Optimism

(Bloomberg) --

European equities posted their biggest one-day gain since late 2008 as investors turned more optimistic about stimulus measures to combat the economic fallout from the coronavirus.

The Stoxx 600 Index rose 8.4% to close at its highest level in two weeks. Germany’s DAX Index jumped 11% as Chancellor Angela Merkel’s government said it is evaluating measures to help revive the economy after the coronavirus crisis subsides. The FTSE 100, CAC 40 and FTSE MIB were all up more than 8%. Signs that the U.S. Congress is close to agreeing on a spending bill buoyed sentiment, eclipsing earlier reports showing services and manufacturing indexes in the euro area dropped to a record low.

Cyclicals led a broad advance in sectors, with miners, carmakers and oil stocks up more than 15%. Insurers also outperformed, posting a record 15% jump. The sector got a boost from rising rates and equity prices on Tuesday, as most insurers have big exposure to these assets.

“Although calling a bottom is a tricky endeavour, we believe we’ve experienced a majority of the losses for this drawdown,” said Jeff Schulze, investment strategist at ClearBridge Investments. “It would not be surprising to us to see a counter trend rally over the next couple of weeks because the market is very oversold and we expect to see some quarter end portfolio rebalancing back into equities.”

While European stocks have tumbled since a peak in late February on mounting worries about the spread of the virus, unprecedented stimulus measures by central banks from Europe to the U.S. have tempered losses. The Stoxx 600 has in recent sessions remained above an intraday low point reached March 16. Strategists at Morgan Stanley said markets are nearing “peak uncertainty” and valuations suggest that the longer term risk-reward is attractive.

Countries from the U.K. to South Africa tightened restrictions in the latest containment measures to slow the spread of the virus. Lockdowns in Europe are battering the region’s economy, with PMI data from IHS Markit on Tuesday showing the euro-area measure for manufacturing and services dropped to the lowest since the series began in 1998.

“We need to see measures from Congress similar actually to see what we’ve seen in the U.K., where there’s confidence that companies will be able to reduce company hours but the state will pay for them,” Mike Bell, global market strategist at JPMorgan Asset Management, said in a Bloomberg TV interview. “Before thinking we’re at a bottom I want to see a peak in the infection rate in the major economies around the world.”

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