Shares in carmakers were boosted on Monday by a report that China is considering cutting vehicle sales tax to boost demand, helping European stock markets rebound after last week’s mauling.
Financial stocks also contributed to the rally, thanks to strong results from Europe’s biggest bank, HSBC, as well as the decision by Standard & Poor’s not to downgrade the Italian government’s credit rating.
The STOXX 600 index, which tracks the share prices of companies across 17 European countries, ended the day 0.9% higher. Despite the bounce, the STOXX 600 remained on track for its worst monthly performance since August 2015, following the stock market turbulence through most of October.
London’s FTSE 100 closed up 1.4%, led by HSBC, which closed up 4.8%. The FTSE 100 posted its best daily performance in five weeks, recovering some of the ground lost last week after a heavy sell-off hurt shares around the world.
The gains in Europe followed a sluggish performance in Asia, where worries about China’s slowing economy weighed. Wall Street started in positive territory before slipping back.
“European markets enjoyed a stronger start to the week, despite a sell-off in China as investors digested the impact of a trade war with the US on industrial earnings,” said Russ Mould, investment director at AJ Bell.
Car manufacturers were the strongest performing business sector across European stock markets, up 3%. They rose sharply after a Bloomberg report said that China was considering halving its car purchase tax to 5% to support its struggling auto industry, which has been hit hard by the ongoing China-US trade war.
Investors seized on a potential good news story for a sector buffeted in recent months by falling sales, particularly of diesel models in the wake of the Volkswagen emissions scandal, and concerns about the impact of a trade war and the impending switch from combustion to electric engines.
The Chinese tax cut report lifted shares in VW, up 4% and the biggest riser among the European car makers. Daimler, BMW, Fiat, Renault and Peugeot Vauxhall’s parent PSA also enjoyed a share price boost, along with car parts suppliers including Michelin, Pirelli and Continental.
Shares of General Motors, the No1 US automaker by sales, were up about 2% by mid afternoon in New York, while those of rival Ford were up by 4%. Shares of the two companies have fallen more than 20% this year.
The gains by carmakers helped offset worries over the political outlook in Germany, Europe’s largest economy after the German chancellor, Angela Merkel, said she would not seek re-election as party chairwoman at a conference in early December and that her current term as chancellor would be her last.
However, analysts warned that the positive mood among European investors was unlikely to last. “Equity markets bounced back today as traders swopped in to snap up relatively cheap stocks. The German market has rallied thanks to a jump in car manufactures,” said David Madden, a market analyst at CMC Markets UK.
“China is keen to keep the economy motoring along and Beijing is considering cutting the tax levied on car purchases by half … China’s economy is cooling, and the policy would be aimed at boosting demand.
“The bullish mood has spread across Europe, but seeing as the geopolitical and economic risks still persist, the upward move might not last long.”
The European banking sector rose 1.9% to a one-week high. Italian banks shone after the rating agency S&P’s kept its credit rating two notches above non-investment grade for Italian sovereign bonds, even though it lowered its outlook to negative, saying that the new government’s policy plans were weighing on the country’s growth and debt prospects.
Banco BPM shares rose 5%, UBI Banca 4% and UniCredit 4.3%.