Europe Stocks Rally -- Update

By Josie Cox 

European stocks and bonds rallied in early trade Monday, still encouraged by hints of further stimulus from European Central Bank President Mario Draghi last week and even though data showing stronger than expected German business sentiment may take the edge off expectations for immediate action.

In early trade, the Stoxx Europe 600 was 0.4% higher, buoyed by a 1% rise in Paris's CAC and 0.1% rise on London's FTSE 100. Frankfurt's DAX added 0.5% after the German Ifo came in at 104.7 for November, above the 103 consensus forecast.

The climbs build on last week's rally that followed Mr. Draghi's speech in Frankfurt, in which he said it was necessary to bring eurozone inflation up to the ECB's target "without delay." Barclays economists said Friday's speech was "one of his most candid to date."

"Although [Mr. Draghi] maintained that longer-term indicators on the whole remain within a range that the ECB considers consistent with price stability, his language is increasingly reflecting the growing concern that they soon could also fall below this range," they said.

Asset classes considered to be risky, such as southern European government bonds, rallied Friday and remained in strong demand Monday. Spain's IBEX 35 rose 1.5%, making it one of the best performing across the continent. The country's 10-year government bond yield fell to a euro-era low of below 2% in early trade. Yields on 10-year German Bunds were around 0.74%. Yields fall when bond prices rise.

Also still bolstering global sentiment was China's central bank surprise cut in interest rates on Friday. Hong Kong's Hang Seng Index closed almost 2% higher Monday. The S&P 500 was indicated opening 0.2% higher in the U.S. Futures, however, don't necessarily reflect moves after the opening bell.

In commodity markets, gold--an asset often favored during times of volatility--was 0.3% lower at $1,198.50 a troy ounce. Brent crude was trading 0.2% lower at $80.25 per barrel, almost 28% down on the year.

Petrofac Ltd., which designs, builds and operates oil and gas infrastructure, warned investors that it will report net profit at the lower end of its forecast earnings range this year, specifically citing the weak oil market.

Shares in the group tumbled almost 24% at the open.

Shares in Aviva PLC also fell. On Friday, the group announced plans for a GBP5.6 billion ($8.8 billion) takeover of Friends Life Group in an all-share deal.

Jefferies analysts said, however, that following "initial share price weakness given the strategic shock the deal represents," both companies would likely benefit.

"Successful execution of the deal would, however, lead to undisputed market leadership in U.K. insurance, growth via cross-sell and, in our view, a double-digit increase in dividend paying potential," they wrote in a note.

Write to Josie Cox at [e-mail]

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