European stocks kick off June in rally mode as commodities climb

European stocks started June with strong gains, lifting a key regional barometer to a new high, as commodities prices rallied on hopes the global economic recovery will continue gathering pace.

The European Stoxx 600 index rallied 1 per cent in morning trading, reaching a record high. Shares in miners and energy companies led the way in Europe on Tuesday, as the price of global oil benchmark Brent reached its highest level since March.

Tuesday’s gains were broad, however, with other economically sensitive sectors such as automakers, industrials and banks also rising.

Germany’s Dax index rose 1.2 per cent, driven by investor confidence about accelerating vaccine rollouts and economic reopenings, while France’s Cac 40 index climbed 0.8 per cent. London’s FTSE 100, which is relatively heavily weighted towards commodities companies, gained 1.3 per cent.

Brent crude, the global benchmark for oil, rose more than 2 per cent on Tuesday to $70.69 a barrel. West Texas Intermediate, the US benchmark, rose 2.7 per cent to $68 a barrel, hitting levels not seen since 2018.

A survey of factory executives in China, the world’s biggest emerging market, released on Tuesday was the latest sign that the global economic recovery was gaining speed.

The Caixin manufacturing purchasing manager’s index reached a five-month high and pointed to an overall acceleration in growth. It also showed there were mounting cost pressures for manufacturers with the price of many raw materials rising.

In another sign of rising inflation across global economies, consumer prices in the eurozone rose 2 per cent in May from the same month in 2020 from a 1.6 per cent rate in April. Energy prices led the way higher, with a 13.1 per cent annual surge.

The provisional inflation figures come ahead of the European Central Bank’s June 10 meeting, where it is due to make a decision on whether to changes its rate of asset purchases from it’s current €80bn in net purchases a month.

The central bank targets inflation of close to but below 2 per cent. Several policymakers have signalled recently that they expect the recent jump in CPI will be transitory and partly represents a rise from very low levels during the coronavirus crisis.

John Leiper, chief investment officer at Tavistock Wealth, said the inflation figures reflected a strong pick-up in eurozone economic activity.

“I expect the recovery to continue into the second half of 2021 as government restrictions on economic activity are loosened and investors become more optimistic for the region’s prospects,” he said.

In the US, equities were set to rise at open following the Memorial Day long weekend. Futures on the S&P 500 were up 0.4 per cent, while the tech-focused Nasdaq 100 rose 0.4 per cent.

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