European stocks continue recovery as banks get left behind

Europe Markets

Santander bank logo is seen on a building on September 2, 2020 in Warsaw, Poland.

Aleksander Kalka/Zuma Press

European stocks extended gains on Thursday, as data show the economic recovery grinds ahead, with signs afoot of potentially more stimulus.

Up 1.7% on Wednesday and 33% from its March lows, the Stoxx Europe 600

rose 1%.

The French CAC 40

rose 1.8%, as the German DAX

and U.K. FTSE 100

also gained ground. France is rolling out details of its €100 billion stimulus plan.

The gains came after relief from the breakneck rise of the euro
and the pound
against the dollar. Comments this week from European Central Bank chief economist Philip Lane that the euro/dollar rate does matter have raised expectations ahead of the ECB meeting next week.

But the backdrop for the advance is the rally on Wall Street, which on Wednesday sent the S&P 500

to its 22nd record high and the Nasdaq Composite

to its 43rd record. In the U.S., it wasn’t technology stocks but utilities and materials companies that paced the gains. Reports of new talks over the stalled stimulus bill have fanned expectations of a deal.

Meanwhile, a host of data from the service sector, on both sides of the Atlantic, should show the economy continuing to move toward its pre-pandemic levels. The eurozone services purchasing managers index barely held above the 50 level indicating expansion, while U.K. services PMI jumped in August.

The popular Euro Stoxx 50

will be reshuffled, with banks Société Générale

and BBVA

headlining the five getting removed, and Banco Santander

is getting axed from the Stoxx Europe 50. European banks, already struggling with years of negative interest rates and little growth, took a cumulative €33 billion of loan-loan provisions in the second quarter, according to Deutsche Bank. The Euro Stoxx bank index

has slumped 37% this year.

Of stocks on the move on Thursday, Siemens Healthineers

fell 4% after saying it sold €2.73 billion of new shares to institutional investors, to help finance its purchase of Varian Medical Systems.

Melrose Industries

jumped 13%, after the loss-making U.K. company said trading over the summer was at the higher end of its expectations. Like many companies, it said it wouldn’t pay a dividend.

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