Oil rally helps energy stocks lead European shares higher

(Reuters) – European shares ended higher on Thursday as a rally in crude prices saw energy stocks surge more than 2%, while strong earnings reports helped dispel some concerns over the infectious “Delta” variant of the coronavirus.

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, July 1, 2021. REUTERS/Staff

The pan-European STOXX 600 closed 0.6% higher at 455.63 points, with energy stocks marking their best day in one month. Energy services provider TechnipFMC Plc was the top gainer in the sector, adding 4.4%.

Oil prices rose almost $2 on the prospect of increasing global demand, while lower U.S. crude stocks helped. Reuters also reported that OPEC would hike production by less than expected, which could result in a supply shortfall and support oil prices later this year.

“This approach comes amid a spreading Delta variant, which is still impacting mobility in certain geographies. Separately, Washington’s negotiations with Iran could also quench a substantial portion of expected deficits down the road,” analysts at TD Securities wrote in a note.

“A Summer Breakout in energy markets can continue to gather steam with supply artificially constrained.”

Travel-related stocks jumped 1.9% after falling for four days in a row on fears of more restrictions following a spike in the number of COVID-19 cases in Asia and the United Kingdom.

Airlines EasyJet, British Airways-owner IAG and Ryanair rose between 1.5% and 4%.

The STOXX 600 was now within 1% of a record high hit in June, as growing optimism over a vaccine-led economic recovery this year saw sentiment jump to a 21-year high.

GRAPHIC-STOXX 600 less than 1% below June peak –

Figures on Thursday confirmed the euro zone manufacturing sector expanded last month at its fast pace on record.

Germany’s DAX rose 0.5% as data showed retail sales in Europe’s biggest economy rebounded in May.

Technology stocks, which had outperformed through the pandemic, were the sole losers for the day, down 0.7%. Investors were likely comfortable in pivoting to sectors more exposed to an economic recovery.

Associated British Foods rose 4.8% as it said third-quarter sales at its Primark fashion stores that reopened after COVID-19 lockdowns were ahead of expectations in all markets.

French catering and food services group Sodexo rose 2.3% after boosting its second-half revenue and profit margin forecasts, betting on the full reopening of U.S. schools.

Sodexo’s peer, Denmark’s ISS, jumped 6.6% to the top of the STOXX 600, after the news.

Fashion retailer H&M, on the other hand, fell 1.1% as its second-quarter earnings remained well below pre-pandemic levels.

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