Europe close: Stocks reverse early losses, strategists constructive

European shares bounced back at the start of the week as better-than-expected reading on factory sector activity out of China, India and the US helped to steady investor sentiment.

To take note of too were what appeared to be positive reports on the outlook for a Covid-19 vaccine.

"Uncertainty around the US election, spiking COVID cases causing partial lockdowns in Europe, and Brexit are the main sources of uncertainty, but we expect these risks to dissipate in coming weeks/months," said equity strategists at Barclays Research.

The pan-European Stoxx 600 index was up 1.61% to 347.86, with the UK's FTSE 100 recovering from earlier falls to be 1.39% higher. Germany's DAX had pushed ahead by 2.01% and France's CAC 40 by 2.11%.

Oil&Gas shares paced gains, with the Stoxx 600 sector sub-index up by 3.56%, as Brent futures reversed a 6% loss on news that Russia might put its plans to taper oil output curbs on ice for three months.

Strategists at JP Morgan also had a constructive view on the market, albeit with some caveats.

"The elections are in front of us, and any clear result is likely to be seen as a positive, with investors then able to look forward to a fiscal stimulus down the line," JP Morgan's Mislav Matejka told clients on Monday.

"Stalemate/contested elections would lead to further risk-off trading, but we believe that, if such a scenario arises, one should be using the weakness as an opportunity to add exposure on a 3- to 6-month horizon."

Regardless of the election outcome, a rotation towards 'value' and away from 'growth', Matejka said, recommending clients take profits in Tech and add Financials, both Banks and Insurance.

Matejka's remarks saw the Stoxx 600 sector gauge for Banks advance 2.85%.

On the Covid-19 front meanwhile, a researcher at AstraZeneca told Spanish broadcaster Rac1 that its vaccine would be widely distributed by the of the first quarter of 2021.

Be that as it may, at the weekend the British government proposed a four week lockdown from Thursday, subject to parliamentary approval in a vote on Wednesday. Italy, Spain, Ireland, France, Belgium, Greece and Germany had already imposed measures.

Yet the China manufacturing PMI number for October printed at 53.6, its best level in nearly 10 years, which "points to the fact that the world’s second biggest economy has continued to gain traction as it slowly returns to some kind of normal after its February lockdown," said CMC Markets analyst Michael Hewson.

Manufacturing growth in the eurozone soared in October but the recovery from was largely driven by Germany, a survey showed.

IHS Markit’s final Manufacturing Purchasing Managers’ Index climbed to 54.8 in October from September’s 53.7, its highest reading since July 2018 and ahead of the 54.4 flash estimate. Anything above 50 indicates growth.

UK stocks featured heavily in the main movers list, reflecting the fortunes of those sectors likely to benefit or suffer from the new lockdown.

Ocado shares were more than 8% higher as the online supermarket increased its guidance for annual earnings to more than £60m from more than £40m as consumers switch to online shopping – a trend that looked likely to continue towards Christmas.

The company also agreed to buy Kindred Systems, a piece-picking robotics company, for about $262m and robotic arm designer Haddington Dynamics for $25m.

Just Eat Takeaway was a high riser amid expectations that people will be ordering in food more once the second lockdown takes effect this week.

Travel and leisure-related stocks were mixed, with British Airways parent IAG nearly erasing early losses, Premier Inn owner Whitbread a tad higher, and engine maker Rolls-Royce snapping higher.

Transport operator National Express was the minus column but its shares too ended the day well off their worst levels and budget airline easyJet pushing into the green by the close.

Ryanair shares rebounded despite the Irish budget carrier reporting a €226m loss in the third quarter.

Retailers on the other hand were weaker, with JD Sports cloberred and Next down by around 2%.

Primark owner Associated British Foods reversed earlier losses after saying it expects to lose £375m in sales as new Covid-19 lockdowns across Europe forced the closure of its stores.

Ladbrokes owner GVC lost ground after it warned that core earnings could fall by up to £43m as new coronavirus restrictions were imposed on its European shops.

Shares of outsourcer Serco tumbled after it lost a Ministry of Defence contract to provide nuclear warheads but reiterated its full-year guidance.