European stocks rebound as bond markets stabilise, UK outperforms

European stocks recovered on Monday after bond markets stabilised following a sharp selloff last week, while sentiment was boosted by heightened optimism over global COVID-19 vaccination programmes and a $1.9 trillion US stimulus package.

The pan-regional STOXX 600 index rose 1.7 per cent, tracking strong gains in Asian markets, while data showed manufacturing activity picked up pace in major euro zone economies in February.

The European equities benchmark fell to a near one-month low on Friday as investors grew fearful that rising inflation due to another large US stimulus package and the re-opening of the global economy could drive major central banks to tighten monetary policy.

However, a climb in government bond yields reversed on Monday, driving a recovery in global equities.

“Equities should prove resilient, but the recent pick-up in real yields deserves to be watched. It is more toxic for highly valued risk assets, including growth stocks,” analysts at Generali Investments wrote in a note.

Overall, the analysts said they maintain “a moderate pro-risk tilt”, with potential pullback in stocks providing buying opportunities as economies look to re-open. News that initial deliveries of the newly approved Johnson & Johnson COVID-19 vaccine should start in the United States on Tuesday also helped the mood.

The German DAX rose 1.3%, while France’s CAC 40 was up 1.6 per cent and UK’s FTSE 100 gained 1.9 per cent.

London markets outperformed as data showed more than 20 million people across the United Kingdom received their first COVID-19 vaccine shot as the country made more progress with Europe’s fastest vaccination programme.

Meanwhile, British finance minister Rishi Sunak is expected to announce more borrowing on top of his almost 300 billion pounds ($418 billion) of COVID-19 spending and tax cuts in a budget statement on Wednesday.

Homebuilders such as Persimmon, Taylor Wimpey and Barratt Developments were the top gainers on the FTSE 100, gaining almost 5 per cent.

British Airways-owner IAG also jumped 5 per cent after Peel Hunt upgraded the stock to “buy” on expectations of a rebound in travel demand during summer.

Miners, travel and leisure and retail sectors topped gains in Europe, up more than 2.3 per cent.

French food group Danone rose 2.5 per cent after it said it was taking a first step toward selling its stake in its Chinese dairy partner Mengniu Dairy, and would use the gains to buy back its own shares.

Swiss-listed shares of computer goods maker Logitech International rose 1.5 per cent after it raised its sales growth forecast to about 63 per cent for fiscal 2021, up from the 57-60 per cent range it previously expected.