European stocks rise as upbeat forecast from Volkswagen spurs rally in autos

(Reuters) – European stocks rose on Tuesday as an upbeat forecast from German carmaker Volkswagen prompted a rally in the automobiles sector, while investors awaited the U.S. Federal Reserve’s views on a recent pickup in inflation.

The pan-European STOXX 600 index rose 0.9%, inching closer to a record peak set last year, while the regional autos sector jumped 2.1% to its highest level since June 2018.

Leading gains among autos was Volkswagen AG which jumped 6.7% after it said it was confident that cost cuts will help improve profit margins in the coming years.

“There is something to do with more interest as global investors are becoming more attracted to areas outside of technology which would include sectors like autos, mining and industrials,” said Chris Bailey, European strategist at Raymond James.

“Particularly for autos it is a combination of higher demand as economies recover and also these are companies with proper international businesses.”

Zalando rose 5.0% after it forecast 2021 revenue growth above market expectations following a strong start to the year. Its shares touched a three-week high and lifted the wider retail index.

A gauge of volatility in European stock markets slipped to its lowest level in over one year.

Investors are focused on the Fed’s two-day policy meeting, which will end on Wednesday amid concerns that a potential spike in inflation as economies recover could prompt the central bank to tighten monetary policy sooner than expected.

Official data showed French final inflation rose largely in line with estimates in February. Meanwhile, the ZEW economic research institute said investor sentiment in Germany increased by more than expected in March, buoying the outlook for a broad-based recovery in Europe’s largest economy.

While optimism about an economic recovery has pushed markets to near-record highs, concerns remain about the pace of COVID-19 vaccination in Europe, with Sweden becoming the latest country to pause AstraZeneca’s vaccine after several countries reported possible serious side-effects.

Deutsche Bank slashed 2021 economic growth forecasts for the euro area by a percentage point, citing spillover of the ongoing pandemic-linked activity curbs, but raised predictions for Britain, the United States and India.

French telecoms operator Iliad SA jumped almost 4.5% after saying it aimed to turn a core profit for its Italian business in the second half of this year.

German biotech firm Morphosys slumped 10.6% to the bottom of STOXX 600 after forecasting a fall in 2021 revenue.

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