European Stocks Rise on China Optimism, Bouncing Off Weekly Drop

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(Bloomberg) — European equities rebounded from last week’s declines after China eased Covid-19 curbs, fueling risk-on sentiment. 

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The Stoxx Europe 600 rose 0.9% by the close in London as a loosening of restrictions in Beijing increased bets that economic activity will pick up. Commodity-tied stocks jumped with oil and metals, while technology shares advanced with peers in Asia and the US. 

The FTSE 100 gained 1% after UK markets resumed trading following a holiday, even as Boris Johnson faces a leadership vote in his ruling Conservative Party.

Hawkish central banks, soaring inflation and the war in Ukraine are among a wall of worries that have pressured European stocks this year. Investors are now awaiting the European Central Bank’s meeting on Thursday when it’ll announce an end to bond purchases and formally begin the countdown to an increase in borrowing costs in July. 

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Any further reopening of China’s economy will lift global sentiment further, said Marija Veitmane, a senior strategist at State Street Global Markets. While the People’s Bank of China is doing everything to kickstart the economy, “people and companies are not going to spend while they are still locked in their houses,” she said.

Sanford C. Bernstein strategists Sarah McCarthy and Mark Diver said in a note that profit-margin consensus remains bullish despite macro concerns, including slowing growth, an energy crisis, war in Ukraine, rate hikes, and China lockdowns. Soaring consumer demand and sales need to persist to counterbalance input cost inflation, they said, otherwise a large margin squeeze may be on the horizon, particularly in Europe.

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Meanwhile, investors sold European stocks for a sixteenth straight week, with regional stocks seeing outflows of $4.2 billion in the week to June 1, according to Bank of America Corp. strategists citing EPFR Global data.

Among individual movers, Prosus NV, a Tencent Holdings Ltd. shareholder, rallied after a Wall Street Journal report that China is preparing to conclude its probe on Didi Global Inc. 

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