Europe midday: Stocks rack up strong gains; travel and leisure sector rebounds

European stocks racked up strong gains on Tuesday as investors cheered encouraging German data and signs that further stimulus from the European Central Bank may be on the cards.

At midday, the benchmark Stoxx Europe 600 index was up 2%, France’s CAC 40 was 2.3% higher and Germany’s DAX was up 1.8%.

Greece’s ATHEX composite was also firmly in the black, up 2.2% after the country reached a preliminary deal with its international creditors over the next tranche of its bailout aid.

Sentiment was underpinned by encouraging German data and comments from the ECB’s chief economist Peter Praet, which added weight to expectations of further stimulus.

Praet told Bloomberg in an interview that it was key for the central bank to keep inflation expectations anchored, especially in a period of slack in the economy.

“There are risks and this is why we’re considering further action. A possible de-anchoring of inflation expectations together with a lot of slack is a dangerous cocktail,” he said.

Meanwhile, figures released earlier showed German investor confidence rebounded strongly in November.

The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose from 1.9 last month, its lowest level in a year, to 10.4 in November, beating analysts’ expectations for a 6.0 reading.

Still, the gauge monitoring confidence in the current environment slid from 55.2 to 54.4, slightly below analysts’ expectations for a 55.2 reading.

“A firmer stock market and expectations of more QE next month likely were the key drivers of the jump in investor expectations this month,” said Pantheon Macro. “The current assessment’s index fell trivially…but the expectations index is the key indicator in this survey, and we’re encouraged by signs of a rebound.”

In currency markets, the euro was weaker against the greenback, down 0.2% to $1.0662 as mounting expectations that the US Federal Reserve will raise interest rates next month and the ECB will loosen monetary policy weighed on the single currency.

Societe Generale said: “EUR/USD 1.05 is an obvious psychological target, but for now all that can be said is that the FX market has the bit between its teeth.”

On the corporate front, German internet service provider United Internet rallied after posting an increase in third quarter core profit and revenues, while London-listed engineer Smiths Group surged after its first quarter trading statement showed resilience.

German car maker Volkswagen was also on the front despite news that its market share in Europe fell in October and that the company manipulated the carbon dioxide emission levels of more petrol vehicles than previously disclosed.

EasyJet was in the red despite posting an 18% rise in full year pre-tax profit as revenue and passenger numbers grew and expressing confidence over the long-term outlook for the business. Analysts highlighted some disappointment that a special dividend was not announced, along with worries about the impact of the Paris attacks and Sharm el-Sheikh.

The Stoxx 600 travel & leisure index rebounded from heavy losses in the wake of the Paris terrorist attacks, trading up 1.8%.

Still to come on the economic calendar, the US consumer price index is at 1330 GMT, while industrial production is at 1415 GMT and the NAHB Housing market index is at 1500 GMT.