European stocks have record in sight on hopes stimulus will stay

European equities rose on Monday, boosted by optimism that curbs to central bank stimulus will be delayed, while traders focused on new additions to Germany’s benchmark.
 

The Stoxx 600 Index was up 0.6% by 12:37 p.m. London time, though a closed U.S. market could cause volumes to be thinner than usual. Germany’s DAX Index advanced 0.6% after gaining new members Zalando SE and HelloFresh SE as part of a revamp of the benchmark.

European stocks are trading within a whisker of a recent record level as attention turns to the outlook for stimulus. Sebastien Galy, macro strategist at Nordea Fund, said that expectations of a delay to tapering by the U.S. Federal Reserve were supporting equity markets, a sentiment he expects to continue.

“The mentality of ‘buy on dip’ is as robust as ever taking negative news such as U.S. nonfarm payrolls as good news, which is typical of an advanced carry,” Galy said, referring to Friday’s U.S. jobs data. A weaker-than-expected jobs print suggests that the Fed could delay scaling back its asset purchases at its meeting later this month.

On Monday, the region’s equities were bolstered by the technology sector as shares in heavyweight Prosus NV rose and TeamViewer AG gained 4.7%. Separately, Norsk Hydro ASA rallied 4% amid a spike in aluminum prices, while an earnings update and an analyst downgrade weighed on Dechra Pharmaceuticals Plc, which fell 4.9%.

Thursday’s European Central Bank decision will be a key focus for investors, with recent hawkish comments from some speakers prompting concerns that it could be looking to pare back its support measures.

Despite these worries, strategists at JPMorgan remain positive on the direction of global equities, recommending investors keep using any periods of weakness to add risk.

More specifically on Europe, Esty Dwek, head of global market strategy at Natixis Investment Managers, said that she sees a lot of potential for European equities into the year-end.

“We think that growth is going to hold up better than expected into the third and fourth quarter,” Dwek said on Bloomberg TV. “It’s just being delayed by the delta variant. But hopefully we’re starting to see peaks in cases across Europe and the U.S., which means growth can hold up, the European recovery can continue to unfold.”