Europe may be immersed in suspense, but that didn’t stop their stocks from recovering. A sudden rebound in bank shares allowed European stocks to pull out of a 3-week plunge. Trading remained strained as investors played it safe before a slew of controversial decisions.
European Stocks Pull Off Unexpected Recovery
“European stocks should remain volatile and with lower volume throughout the week,” said Herbert Perus, head of equities at Raiffeisen Capital Management in Vienna. His firm manages 30 billion euros ($32 billion). “Many investors are on the sidelines waiting for the Italian referendum. We have a very important OPEC meeting ahead, therefore the oil price is shaky and so are oil-related companies.”
European banks made a valiant comeback with their first rally in 5 days. Ironically, despite the controversy Italy’s UBI Banca SpA & Itesa Sanpaolo SpA made the biggest gains. Actelion Ltd also jumped 10%, which reversed their earlier losses. This surprise jump was fueled by Johnson & Johnson raising their takeover offer for the Swiss drugmaker.
The banks’ surprising rebound paved the way for European stocks to rally. The Stoxx Europe 600 index added 0.3% after violently swinging between gains & losses. Despite this growth, trading remained low. The total volume of shares changing hands was 16% lower than average. This reflects the growing uncertainty traders are experiencing before two monumental decisions. Between OPEC & the Italian referendum, the future looks extremely volatile for European trading.
It’s no secret that the upcoming Italian referendum has the European market on edge. On December 4th Italy will vote on whether or not it will implement a sweeping constitutional reform. These changes aim to clean up Italy’s controversial banking system. Although they have been fiercely denied, rumors are already swirling about the Italian prime minister. Many believe that Prime Minister Matteo Renzi will step down no matter the outcome.
These controversial opinions are highlighting the political & economic instability that the country is facing. It’s also shone the spotlight on the shady inner workings of Italian banks & their close ties to politicians. All this bad press is already wreaking havoc on the Italian financial sector.
In total Italian shares have dipped by 3.3%. This loss occurred despite the fact that the Stoxx 600 has risen. UniCredit shares plunged by 4.5% in Milan, making it one of the biggest top-toer stock falls in the region. Unfortunately, UniCredit wasn’t alone. Intesa Sanpaolo fell 3.2%, while insurance giant Generali lost 2.4%.
Another factor to the financial turbulence is OPEC’s pending decision in Vienna. The emergency meeting is trying to get the world’s oil producers to agree on curbing production. Once they manage to limit production, they can start working on getting rid of the glut that’s saturated the industry.
Investors have remained hopeful that they will come to a conclusion soon. This was reflected earlier in the week as the oil market settled 2.1% higher at $48.24 a barrel. However, this optimism is quickly fading as negotiations continue.
Even though European stocks are slowly recovering, it could all change fast. The Stoxx 600 enjoyed a 0.6% climb in November, putting it on track for its first advance in 3 months. European Equities have also risen since Trump’s victory pointed to increased fiscal spending. Unfortunately all this progress could easily be reversed if things go haywire with OPEC or Italy’s referendum. For now investors will have wait until the dust has settled to make any major moves.