European stocks on Friday advanced to the highest level since December 2015, posting a weekly advance that was supported by the US Federal Reserve raising interest rates and investor relief over the result of Dutch elections.
Austrian Central Bank Governor Ewald Nowotny said the European Central Bank (ECB) would decide at a later date whether to raise interest rates before or after ending its bond purchasing program, pushing eurozone government bond yields higher.
He said the ECB could hike its below-zero remuneration of bank deposits before the main rates at which it lends to banks.
Traders said his comments sparked an early rally in bank stocks, but the sector turned lower later.
“I think Nowotny and a lot of the regulators and central bankers realize that negative interest rates have been a disaster for the economy and they’re going to get more positive,” said David Hussey, head of European equities at Manulife Asset Management in London.
The STOXX 600 nevertheless ended up 0.2 percent with a 1.4 percent gain for the week.
Mining stocks posted their best weekly performance since November last year, climbing 8.4 percent.
“The green shoots in mining capex are starting to emerge after a four-year downturn,” Barclays analysts, including Lars Brorson, wrote in a note. “Miners are generating strong cash flows, deleveraging balance sheets rapidly and — as is now clear from 2017 budgets — stepping up capital spending again.”
JPMorgan’s European quant macro index “has weakened for two consecutive months and now confirms a rotation from the ‘expansion’ toward the ‘slowdown’ phase of the cycle,” Khuram Chaudhry, a quant strategist at the bank, said in a note. “The net impact of this change is that we now prefer high-quality stocks to high-risk stocks.”
The STOXX 600 is in its fourth month trading above the 50, 100 and 200-day moving averages.
Volatility is retreating across the globe after last week’s Fed policy decision and comments, while anti-immigration candidate Geert Wilders’s defeat in the Dutch elections is easing concerns about rising populism ahead of French elections.
A volatility gauge on the Euro STOXX 50 slid 3.1 percent after plunging 26 percent on Thursday, the most on record.
Among stocks reacting to news flow, Tullow Oil PLC plunged 15 percent after announcing a rights issue to cut debt and invest.
Berkeley Group Holdings PLC was the top performer on the STOXX 600, climbing 6 percent after forecasting full-year pretax profit at the top end of analyst estimates.
Fraport AG gained 4.8 percent after its earnings outlook beat analyst estimates.
Additional reporting by Reuters