StockBeat - Markets Extend Relief Rally; Banks Lag on ECB Fears

By Geoffrey Smith

Investing.com -- After some hesitation at the opening, Europe’s stock markets rose in early trading Wednesday, extending a relief rally that began on Tuesday when Federal Reserve President Jerome Powell hinted at a possible interest rate cut.

Powell had said in a speech on Tuesday that “as always, we will act as appropriate to sustain the expansion,” after voicing concern about the uncertainty created by recent trade- and immigration-related disputes with China and Mexico. There was no mention of the “patient” approach to policy-making that has dominated Powell’s recent communication.

At 04:30 AM ET (0830 GMT), the benchmark Euro Stoxx 600 was up 0.8 points, or 0.2% at 373.74, near its highest in a week. The German Dax and the U.K. FTSE 100 were both up 0.2%.

Sentiment was also lifted by a surprising rise in IHS Markit’s service sector surveys around the continent. The Eurozone service purchasing managers index rose to 52.9 in May, better than the unchanged reading of 52.5 that was expected. National indexes weakened in France, Italy and Spain, but rose in Germany.

The biggest laggard was Italy’s FTSE MIB, down 0.1%, unsettled by a vote in the lower house of parliament that indirectly endorsed the populist coalition’s vague plans to issue a parallel currency in the form of short-dated government bonds, known as MiniBOTs. Italian press reports have also suggested that the EU has already made up its mind to open an “Excessive Deficit Procedure” against Italy for violating fiscal rules.

Banks are among the worst performers again on Wednesday, as the thought of Fed easing turns minds to the European Central Bank’s policy meeting on Thursday. Some analysts expect the ECB to push back the date for its first interest rate hike beyond the end of this year, which would prolong the intense pressure on bank margins from low rates.

Credit Agricole (PA:CAGR), Societe Generale (PA:SOGN) and BNP Paribas (PA:BNPP) were all lagging the local benchmark index, as were Italy’s Intesa Sanpaolo (MI:ISP) and Unicredit (MI:CRDI) and Spain’s Santander (MC:SAN), BBVA (MC:BBVA) and Caixabank (MC:CABK). In the Netherlands, ING (AS:INGA) and ABN AMRO (AS:ABNd) were at the bottom of the AEX.

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