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European Stocks up on Energy Price Relief, U.S. Debt Talks; Update Lifts Shell

European stock markets traded sharply higher Thursday, continuing the week’s volatile trading with sentiment boosted by falling energy costs and signs of compromise in Washington over averting a U.S. default.


At 3:40 AM ET (0840 GMT), the DAX in Germany traded 1.2% higher, the CAC 40 in France rose 1.2% and the U.K.’s FTSE 100 climbed 1%.


European markets have benefited Thursday from the abrupt reversal on Wall Street late Wednesday, after Senate Minority Leader Mitch McConnell offered a short-term suspension of the U.S. debt ceiling to avert a national default until a more permanent solution can be found before the end of the year.


U.S. Treasury Secretary Janet Yellen recently said such a default would cause “irreparable” harm, in the form of a financial crisis and a recession.


Also helping the tone in Europe Thursday has been the move lower in energy prices, with both crude and gas prices falling off recent multi-year highs after the intervention of Russian President Vladimir Putin on Wednesday.


By 3:40 AM ET, U.S. crude futures traded 1.9% lower at $76.00 a barrel, the Brent contract was 1.2% lower at $80.16.


Investors should buy dips in European equities, Barclays (LON:BARC) said, in a note published Wednesday, arguing that stocks still offer more value than bonds even if price-to-earnings ratios are high and earnings per share growth is set to moderate.


In corporate news, Royal Dutch Shell (NYSE:RDSb) stock rose 0.3%, the energy giant expecting a significant boost to cashflow in the third quarter on the back of the elevated natural gas and electricity prices (even after a significant production outage in the Gulf of Mexico).


Sika (SIX:SIKA) stock rose 2%, as the Swiss construction chemicals group expressed confidence that it could overcome rising raw material costs and supply chain restrictions to increase its sales and profit margins this year. Paper and packaging group Mondi (LON:MNDI) also rose 1.9% after saying it is passing on most of the recent rises in input prices to its customers.


There was some disappointing economic news Thursday, as German industrial production slumped 4.0% on the month in August, a hefty drop from the 1.0% gain seen in July. This follows Wednesday’s sharp 7.7% fall in factory orders, and points to the difficulties Europe’s largest economy has been having with supply chain constraints.


Elsewhere, speeches from European Central Bank members Philip Lane and Isabel Schnabel are likely to draw attention following talk that the central bank is studying a new bond-buying program to prevent any market turmoil when emergency purchases get phased out next year.


Additionally, gold futures rose 0.3% to $1,766.45/oz, while EUR/USD traded 0.1% higher at 1.1564.

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