London: European shares rose in early trade on Tuesday with financials the biggest gainers on hopes that the results of US government stress tests on banks would reveal only modest shortfalls for the sector.
By 2:17pm, the pan-European FTSEurofirst 300 index of top shares was up 0.75% at 849.20 points.
“The general tone is positive so the bulls will have it today but the bears are still lurking around the corner. ... Everything is going to be dominated by what happens to the bank stress test on Thursday,” said Justin Urquhart Stewart, director at Seven Investment Management.
“A lot of the stress test is designed for public consumption to try and give people confidence that the banks are going to be viable. The question is which of them is going to need capital to be able to survive,” he said.
Banks were among the biggest movers. Swiss bank UBS was up 2.8% after its finance head said that its capital position was strong compared with rivals. The group confirmed it had posted a net loss of 2 billion Swiss francs ($1.76 billion) and said it remained cautious. HSBC, Standard Chartered and Societe Generale gained 2.5-5.2%.
US regulators have been poring over the holdings of the 19 largest US banks to determine if they have enough capital to withstand further shocks.
Banks are expected to be briefed on Tuesday on the final results, which will be published on Thursday.
A source familiar with official talks told Reuters about 10 would be told they need to increase the size of their capital cushions. “The stress test looks like it will be a lot more benign than it did (earlier) and the US banks index was up sharply so we’re playing a bit of catch-up,” a trader said of rises in British bank stocks. UK markets were closed on Monday for a bank holiday.
Across Europe, the FTSE 100 index was up 2.4%, Germany’s DAX was down 0.6% and France’s CAC 40 was down 0.5%.
Miners were higher. Xstrata was up 8.7% after it posted a 7.7% rise in first-quarter production of coal, its most profitable commodity, but output of many other products declined amid weak demand and low prices. Rio Tinto was 5.1% higher. The Financial Times reported on Monday that a senior executive of Chinese metals firm Chinalco stood by a planned $19.5 billion tie-up with the global miner amid speculation Rio might try to revise part of the deal to win shareholder support.
Energy stocks also performed well. BG Group, BP, Premier Oil and Cairn Energy were up 1.3-4.2%.
On the downside, Adidas slumped 9.5% after the group said its first-quarter operating profit fell nearly 80% to €58 million, worse than the average analyst forecast of 179 million in a Reuters poll.
French telecoms equipment maker Alcatel-Lucent fell 5.8% after it swung to a bigger-than-expected first-quarter adjusted operating loss but stuck to its target for around breakeven this year.
Later in the week, on Thursday investors are likely to focus on both the outcome of the Bank of England and the European Central Bank rate decision meetings, while Friday sees the release of US nonfarm payrolls.