Sector movers: Financials pace gains, led by Aviva

On 10 March, the ECB ramped up its policy stimulus, which appeared to be crafted so as to stoke lending to the real economy while minimising the negative impact of the measures on lenders’ margins.

The complexity and unexpected nature of the stimulus package, together with a remark from ECB president Mario Draghi that at the moment he did not see a need for further rate cuts, led to an equally unexpected ‘risk-off’ reaction from traders.

“In reality he probably didn't help matters by suggesting the ECB saw no need to cut rates further early in his press conference. […] However, to give that comment some perspective when does a central banker ever say "we're not sure if this will work so we may have to do more further down the road"? So that specific reaction was a little surprising,” Deutsche Bank’s Jim Reid said to clients in a research note.

Be that as it may, Reid recommended clients remain sceptical about the eventual success, or not, of the ECB's policy loosening.

In any case, by Friday investors appeared to have gotten a better handle on the ECB’s aims, sending the pan-European DJ Stoxx 600 bank sector gauge 4.84% higher to 159.56.

London-listed financials participated in the move, with stock in Aviva at the top of the leader-board by the close of trading, alongside the likes of other market darlings such as St.James’s Place (4.75%), Hargreaves Lansdown (4.43%) and RSA Insurance Group (4.37%).

UBS reportedly boosted its target price on Aviva but cautioned clients that “we are relatively cautious around buying into a dividend growth story when sustainable capital generation appears low relative to peers and growth initiatives are yet to be clearly articulated."

The insurer got mixed endorsements from the main newspaper tipsters, with the Daily Telegraph’s Questor telling readers to “hold, rating looks fair given risks inherent in another market sell-off” while The Times’s Tempus recommended they buy for the long-term.

Over on the Continent, shares in Deutsche Bank saw the day off 6.19% above where they had started it off, at €18.33, while Spain’s Banco Popular racked up an advance of 12.79%, followed behind by Santander (7.15%).

Banco Sabadell notched up gains of 9.73% while stock in Bankia jumped 11.39%.

“By seemingly reducing the risk of a worst-case, deep negative rate "Swiss" we expect banks' shares to be supported by today's news-flow, and remain buyers of SAB and BKIA within Spain,” UBS analyst Ignacio Cerezo said in a research note sent to clients.

To take note of, in an unusual move ECB vice president Vitor Constancio published an opinion piece on the central bank’s website on Friday defending the need for further stimulus and its effectiveness thus far.

According to the ECB’s own research, the central bank’s policies had contributed two-thirds of the economic growth seen over the last two years, the central banker said.

Inflation in the euro area would have been a third of a per cent negative in 2015 had it not been for Frankfurt’s looser monetary policy, he added.