A surge in banks, miners and automakers on Friday galvanized European stocks, as continued rotation into the cyclical sectors amid signs of progress in US-China trade talks drove the STOXX 600 to its fourth straight week of gains.
In a week that saw trade tensions between Washington and Beijing thaw and the European Central Bank cut rates deeper into negative territory and relaunch bond purchases with no scheduled end date, banking shares were the star performers.
Eurozone banks, which wavered after the central bank’s decision on Thursday, rallied 2.4 percent, with analysts citing the central bank’s easing of the terms of its long-term loans to banks and introduction of tiered deposit rate as offsetting the pain of negative rates.
The eurozone banks index, up 7 percent on the week, tacked on its biggest weekly gain since March 2017.
“The new tiering system for the banks ought to help the north European banks that have built up large excess deposits, while the cheaper loans should help the funding costs of the southern banks,” Jefferies Group LLC analysts wrote in a client note.
According to Jefferies’ calculation, the old system (without tiering) was costing eurozone banks 7.14 billion euros (US$7.97 billion) per year, while the new system will cost them 5.62 billion euros per year.
German banks are set to benefit by 295 million euros, Italian banks by 221 million euros and Spanish banks by 234 million euros, Jefferies analysts said.
Indeed, Italian banks rallied with a 3.2 percent gain, with main indices in Milan, Italy, and Madrid rising between 0.4 percent and 0.6 percent respectively.
CaixaBank SA and Banco de Sabadell SA each rose more than 7 percent and were the top gainers on the STOXX 600.
Deutsche Bank AG rose 3 percent after becoming the first of 16 financial services companies to resolve claims that it conspired to rig prices of bonds issued by the US’ Federal Home Loan Mortgage Corp and the Federal National Mortgage Association.
In a change of heart among investors who had been buying defensive stocks for much of this year on worries about global trade disputes tipping the world into a recession, momentum stocks such as automakers and miners saw a huge demand this week.
Trade-reliant commodity-linked miners jumped 2.7 percent, leading gains among major European sectors, and automotive stocks were boosted by fresh indications that a prolonged trade war between the US and China was thawing.
After Beijing and Washington made tariff concessions to each other, US President Donald Trump said that he could consider an interim trade deal with China ahead of high-level negotiations next month.
The pan-European STOXX 600 on Friday rose 0.99 points, or 0.3 percent, to 391.79, a 1.2 percent increase from a close of 387.14 a week earlier.
The food and beverage index was the biggest decliner on the STOXX 600 as investors continued to rotate out of defensive stocks.
Roche Holding AG was the biggest boost to the main stock index, as it reported positive data from a primary progressive multiple sclerosis study.
Shares of Atlantia SpA tumbled 8 percent after three employees of companies owned by the Italian infrastructure group were placed under house arrest as part of an investigation into the safety of motorway viaducts following the collapse of a bridge in Genoa, Italy.