Europe midday: Banking stocks rack up solid gains

Banks paced the advanced on Monday as stocks in Europe took their cue from a strong session in Asia.

At midday, the benchmark Stoxx Europe 600 index was up 3.1%, Germany’s DAX was up 2.8% and France’s CAC 40 was 3.4% firmer.

Data released earlier showed China’s exports fell 11.2% in January from the previous year, while imports dropped 18.8%.

Meanwhile, figures from Japan showed the economy contracted at a seasonally-adjusted annual rate of 1.4% in the final quarter of last year, which was significantly weaker than the 0.8% contraction expected by economists.

Still, with the exception of the Shanghai Composite, stocks in the region rallied following the heavy selloff last week and amid hopes that the weak data would prompt further monetary easing from Beijing.

Japan’s Nikkei 225 rocketed 7.2%, while the Hang Seng gained 3.3%.

Sentiment was also supported by a rise in China’s yuan to its strongest level this year against the dollar, after the People’s Bank of China guided the currency sharply higher.

“Stocks have soared in Asia, rebounding aggressively after last week's falls and providing further impetus for European markets.. Recent moves have seen markets lurching from anticipation to despair, sometimes on the same day - so the hope is that this sharp move higher will set a more positive tone for investors, rather than just be seen as an opportunity to sell the rally,” said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor.

“Global Central banks are yet again in the spotlight, with the People's Bank of China intervening to boost the renminbi and Mario Draghi widely expected to discuss further support during his testimony this afternoon.”

Banks were the standout gainers following sharp declines the previous week, with the Stoxx 600 index for the sector up 3.7%.

Banks in Italy fared particularly well, following a report the Italian Treasury said the European Central Bank was in talks with the Italian government about buying bad loans from the nation’s banks as part of its asset-purchase scheme.

Banco Popolare di Milano rose nearly 7% while Banco Monte dei Paschi di Siena surged 10%.

On the corporate front, HSBC was higher after the bank said it would keep its London headquarters rather than move to Hong Kong.

London-listed consumer goods company Reckitt Benckiser rallied after its fourth quarter sales beat analysts’ expectations.

Property heavyweight Hammerson was in the black after posting a rise in full year pre-tax profit amid strong UK demand.

BAE Systems advanced after the defence firm said it has appointed Charles Woodburn to the newly-create role of chief operating officer, following weekend reports that it was lining him up to be the next chief executive.

Hennes & Mauritz shares were higher after the Swedish retailer said sales in January rose 7% from the same month last year.

International Consolidated Airlines flew higher after Bank of America Merrill Lynch double upgraded the stock to ‘buy’.

On the data front, the Eurozone trade surplus fell to €21bn in December from a downwardly-revised €22.6bn in November, according to data released by Eurostat. This was below consensus expectations for €22.4bn.

On an adjusted basis, the trade surplus came in at €24.3bn compared with €23.6bn the previous month.

Meanwhile, investors digested news that the Bundesbank has cut its inflation forecasts for this year and next.

The German central bank reduced its 2016 inflation forecast to 0.25% from 1.1% and its 2017 forecast to 1.75% from 2%.

"The German economy might expand at a somewhat faster pace in the first quarter of 2016 compared with the end of 2015 thanks chiefly to strengthening domestic dynamics," the Bundesbank said.

"Greater momentum is likely to be provided by consumption, which is continuing to benefit from the buoyant labor market situation."

US markets will be closed for Presidents’ Day, so volumes may be lighter than usual.