Europe close: Stocks higher as bond yields fall back ahead of ECB

European stocks gained ground on Tuesday as investors sifted through corporate releases and bond markets recovered some of their poise.

The benchmark Stoxx Europe 600 index was 1.50% higher, Germany’s DAX gained 1.22% and France’s CAC 40 was up by 1.32%.

To take note of, Bank of America-Merrill Lynch's October survey of fund managers showed that they had raised their cash levels to 5.8% of their portfolios value, the highest since 11 September and Brexit, amid concerns about possible stagflation and a bond crash.

Yields on benchmark 10-year Bunds moved lower by two basis points to 0.04% ahead of the European Central Bank's policy meeting the following Thursday.

Looking ahead to the ECB's meeting, Timothy High and Camille de Courcel at BNP Paribas said: "The past two weeks’ sell-off has revived volatility, particularly at the top right. If this week’s ECB fails to deliver a convincing message, volatility will remain well supported into the year end, especially as a series of risk events approaches.

"Market expectations of changes to the ECB’s QE parameters are visible through German asset swap spreads. The pricing of such expectations has had a strong impact on Bund options and contributed to a marked rise in Bund option to swaption vol ratios."

Crude oil futures gave back early gains ahead of the release of US inventory data later in the evening. West Texas Intermediate futures moved up by 0.26% to end at $50.07 a barrel while Brent crude was off -0.1% at $51.47.

Even so, the Stoxx 600 oil and gas index gained 1.15%, after the Secretary General of OPEC said he expected a deal to cut output to be reached at its November meeting.

In corporate news, Remy Cointreau rose after the company’s second-quarter sales beat estimates.

London-listed housebuilder Bellway rallied after reporting a rise in full-year profit as it lifted its dividend by 40% and said demand has remained solid despite the Brexit vote.

On the downside, German automotive manufacturer Continental recovered from early losses after cutting its annual profit guidance, while Kuehne & Nagel International declined as its earnings for the first nine months of fiscal 2016 missed estimates.

Testing, inspection and certification firm Bureau Veritas was also on the back foot after cutting its outlook for full-year 2016 amid weakness in the oil and gas and shipping markets.

Luxury retailer Burberry slumped after it said like-for-like sales improved in the second quarter but for the full year its expected benefit from currency movements is not as big as analyst forecasts.

Budget airline Ryanair flew a little lower after cutting its net profit guidance for full-year 2017 by 5% due to the weakening of the pound following Britain’s vote to leave the European Union.