European Stocks Lifted by Dealmaking Newsflow, ECB Rate Hints

(Bloomberg) — European stocks edged higher Monday, reversing an earlier slide, as dealmaking newsflow lifted sentiment, alongside signs the European Central Bank is gearing up to cut interest rates. 

The Stoxx Europe 600 Index added 0.2% at the close in London, with banks and consumer products leading gains, while real estate and insurance shares lagged. Germany’s benchmark DAX Index was the region’s worst performer, after data showed German factory orders plummeted in August, marking another setback for the region’s biggest economy.

Among single stocks, Orsted AS soared after Equinor ASA announced it bought a stake in the Danish wind energy developer. Richemont gained as much as 2.3% after announcing the sale of online luxury retailer Yoox Net-A-Porter to Mytheresa. Heidelberg Materials AG jumped as much as 3.5% after a report that the Adani Group has started talks to buy the company’s Indian cement operations.

Commerzbank AG rose as much as 3% to trade at the highest since 2011, as the German lender said it has accelerated strategic planning in preparation for a potential takeover offer from UniCredit SpA.

These moves tempered some of the concerns raised by the weak German data, the conflict in the Middle East and a rise in bond yields spurred by a trimming of US rate-cut bets. Money markets now price less than a quarter-point rate reduction, following a strong jobs print on Friday.

The ECB, however, appears set to ease policy, two Governing Council members hinted. Francois Villeroy de Galhau said the ECB will “quite probably” cut rates at this month’s meeting, while Martins Kazaks said he “would be comfortable expecting continued cuts of the same magnitude.”

Focus now turns to the upcoming earnings season which will offer clues on the health of companies and the broader economy. With lowered consensus expectations, “there is a good chance of positive surprises there,” said Marija Veitmane senior multi-asset strategist at State Street Global Markets.

However, JPMorgan Chase & Co. strategists warned that macro risks, including regional politics, US presidential elections and weaker euro-area growth could keep weighing on European stocks. 

For more on equity markets:

• Stock Rally Needs Confidence Boost for Next Leg Up: Taking Stock
• M&A Watch Europe: Rio, Resurs, Greenvolt, Martifer, Richemont

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