Europe midday: Stocks rise as investors snap up bargains

European stocks rose on Tuesday as investors stepped in to pick up stocks that were battered in the aftermath of Britain’s decision to leave the European Union, while the pound and the euro recovered a little ground.

At midday the benchmark Stoxx Europe 600 index was up 2.4%, Germany’s DAX was up 2% and France’s CAC 40 was 2.5% higher following two days of heavy losses.

London’s FTSE 100 was 2.5% stronger, while the more domestically-focused FTSE 250 – which was hit harder post Brexit – was 2.8% firmer.

Italy’s FTSE MIB was up 3.6% as the government there considered a €40bn capital injection for the country’s banks.

Overall, the Stoxx 600 banks index, which took a beating in the last two sessions, was up 2.6%.

At the same time, oil prices advanced, with West Texas Intermediate up 2.7% to $47.59 a barrel and Brent crude up 2.5% at $48.35. Prices were supported by the possibility of a strike in Norway, where worked on oil and gas fields could go on strike from Saturday if they do not agree a wage deal.

In currency markets, the pound was recovering somewhat after hitting fresh 31-year lows on Monday, trading up 0.9% against the dollar at $1.3327.

FXTM's chief market strategist, Hussein Sayed, said: “It seems there is very little news to support the currency at the moment, and David Cameron’s proposal yesterday not to trigger Article 50 will only lead to a prolonged period of uncertainty, exposing the Pound to more downside risk. I would say another 5-10% drop from current levels can’t be ruled out in the next couple of weeks.”

Meanwhile, the euro was trading up 0.6% at $1.1086, having hit a three-month low against the greenback after the EU referendum result.

Chancellor of the Exchequer George Osborne said on Tuesday that the UK will have to cut spending and raise taxes in response to Brexit.

EU leaders are meeting in Brussels on Tuesday, so investors will eye any developments from there as the issue of Brexit is set to dominate talks.

European Commission President Jean-Claude Juncker said on Tuesday that Britain must “clarify its position” on the terms of its departure from the EU as soon as possible.

In a speech to the European Parliament, Juncker said a prompt statement of the type of deal Britain wanted was necessary to end uncertainty.

Juncker reasserted the EU's position, supported by France and Germany, that there would be no informal talks with the UK before it invoked Article 50 of the 2007 Treaty of Lisbon that started formally the exit process.

"We cannot allow a long period of uncertainty. There can be no secret negotiations. No notification, no negotiation," he said.

Despite the upbeat tone in financial markets, some analysts were sceptical that gains could be sustained.

“While equity volumes are picking up, they are still below average and so bargain-hunting may be helping as opposed to emergence of genuine support as markets adjust to a new normal and the prospect of the UK outside the EU,” said Mike van Dulken, head of research at Accendo Markets.

In corporate news, defence and aerospace group Rolls-Royce was on the front foot after saying the UK's decision to leave the EU would not have an immediate impact on day-to-day business, adding that it remains committed to the UK “where we are headquartered, directly employ over 23,000 talented and committed workers and where we carry out a significant majority of our research and development”.

Housebuilder Redrow was sharply higher after saying it expects pre-tax profit for the year to be above the top end of analysts’ estimates, which currently stand at £240m.

Nestle rallied after it named Ulf Mark Schneider as successor to chief executive Paul Bulcke.

On the macroeconomic calendar, the third release of first-quarter US GDP is at 1330 BST. S&P Case-Shiller house prices are at 1400 BST, while US consumer confidence is at 1500 BST.