Europe close: Commodity issues pace gains
By Alexander Bueso
Date: Tuesday 01 Nov 2022
(Sharecast News) - European shares moved higher on Tuesday driven by rumours - thus far unconfirmed - that China might be laying the ground work to ease Covid-19 restrictions and gushing oil profits at BP and Saudi giant Aramco.
The pan-European Stoxx 600 index rose 0.53% to 414.37, with Britain's oil-stock dominated FTSE 100 up 1.29% to 7,186.16.
France's Cac-40 was up by 0.98% to 6,328.25 alongside, while the FTSE Mib put on 0.63% to 22,795.64.
In the background, euro/dollar was flat at 0.9882 - having earlier risen to 0.9953 - dragged lower by a better-than-expected regarding US job openings for the month of September.
Basic Resources outperformed on the Stoxx 600, climbing by 3.4%, in the wake of rumours on Chinese social media that Beijing had created a committee to study how to reopen its economy.
However, a Chinese foreign affairs spokesperson later reportedly said he had no knowledge of such a committee.
In parallel, the Stoxx 600 gauge of Oil&Gas shares advanced by 1.61% to 348.11.
BP reported an estimate-busting third-quarter profit of $8.15bn and also announced another $2.5bn in share buybacks. Sentiment was also boosted as state oil giant Saudi Aramco reported a 39% rise in net income for the third quarter year-on-year, on the back of higher crude prices.
Despite the profit bonanza, BP shares were down slightly in early trade. The UK government has already imposed a windfall tax on energy companies, but with a £40bn hole in state finances caused by the Conservative's disastrous mini-budget, calls are increasing for the levy to be extended.
Investors were also eyeing the US Federal Reserve's two-day policy meeting, and expect a 75-basis-point increase in interest rates on Wednesday. The Bank of England is also expected to lift its benchmark this week.
"While a 75-basis point hike looks locked in tomorrow, the messaging is what investors are interested in. Despite inflation remaining at eye-watering levels, there's a growing belief that the central bank will signal a desire to ease off the brake over the following few meetings starting with a 50bps hike in December," said Oanda market analyst Craig Erlam.
"It may come too late to avoid a recession but the Fed has been very clear from the start that while a soft landing is the desirable and attainable outcome, getting inflation under control is the primary focus. The question is whether the central bank believes its efforts will achieve that or if more needs to be done."
"With the economy weakening, earnings not impressing and yield curves inverting - signalling an incoming recession - many now believe the risks of aggressive tightening are greater than a more gradual approach. The economy has a lot of tightening to absorb once rates likely hit the 3.75-4% range this week."
Business surveys in Asia showed that the region's factory output weakened in October as global recession fears and China's zero-Covid policy hurt demand, while the Reserve Bank of Australia stuck implemented an expected 25 basis points rate hike and revised up its inflation outlook.
In other equity news, Ocado shares delivered a massive 40% rise after the grocery technology firm struck a partnership with South Korean business conglomerate Lotte Shopping to develop the latter's online offering.
The sentiment spilled over into the food delivery sector, with Just Eat Takeaway, HelloFresh and Delivery Hero also making strong gains.
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