By Jack Denton
European equities started the trading week lacking direction, as major indexes across the region bounced around flat before pulling ahead to march higher, amid a weakness in commodities and following declines in Asia.
The pan-European Stoxx 600 (STOXX:XX:SXXP) was 0.7% higher, while in London the FTSE 100 (FTSE:UK:UKX) rose 0.6%. Paris’ CAC 40 (PAR:FR:PX1) lifted 0.5% and Frankfurt’s DAX (XEX:DX:DAX) rose 1%. U.S. stocks surged, recouping losses from Friday, with Dow industrials more than 500 points higher by midday after the index declined 533 points to 33,290 on Friday.
A move down in Europe at the beginning of the day followed a slump in Asian trading, led by Japan, where the Nikkei 225 (NIKKEI:JP:NIK) index tumbled 3.29%.
“Asian markets slumped heavily as investors continued to react to last week’s U.S. Federal Reserve meeting which has curdled sentiment by raising the prospect of earlier than expected rate rises,” said Russ Mould, an analyst at AJ Bell.
Last week’s news from the Fed has taken the wind out of the reflation trade, analysts noted, piling onto problems for commodities, after China announced plans last week to tap national metals reserves to rein in a rally in the sector. Iron ore futures for the month of June were down near 1%.
“Commodities have been pressured by the strong dollar. Given they are denominated in the U.S. currency they become more expensive to buy in other currencies when it rises,” Mould added.
Marshall Gittler, an analyst at BDSwiss, noted that “expectations of higher interest rates and lower inflation — plus China’s moves to rein in speculation — have sent commodity prices sharply lower.”
Rio Tinto (LON:UK:RIO) stock fell around 3% before paring losses to settle 0.3% lower. Shares in the major producer of iron ore, were further weighed on by a downgrade from Swiss bank UBS (NYS:UBS) , which changed its rating on the stock to sell from neutral, noting risks from a more hawkish Fed and China taking actions to deflate commodity prices.
The standout stock in Europe was Morrisons — one of the U.K.’s largest supermarket groups and e-commerce giant Amazon’s (NAS:AMZN) grocery delivery partner in the country. Shares in Morrisons jumped near 28%, as analysts expect the company to attract more takeover bids, after rejecting an £8.7 billion ($12 billion) offer from U.S. private-equity firm Clayton, Dubilier & Rice over the weekend.
Shares in Vivendi (PAR:FR:VIV) , the French media giant, rose near 1%, before dropping 0.2%, after blank-check group Pershing Square Tontine Holdings — founded by billionaire American investor Bill Ackman — agreed to buy 10% of Universal Music Group on Sunday. The deal, for around $4 billion, gives Universal Music an enterprise value of €35 billion ($41.6 billion). Pershing Square stock rose around 0.4% in New York.
Lloyds Banking (LON:UK:LLOY) stock fell near 1%, before reversing course to gain 1.2%, after a report over the weekend that the group was set to buy its first property under a new plan to diversify its revenues by becoming a private landlord. The bank is close to securing a block of flats in Peterborough, England and could begin renting them out next month, in a move that would make it the first major U.K. retail bank to move into private rentals, the Mail on Sunday reported.