Europe's equity rally found fresh legs as bond yields calmed and oil prices eased on hopes of movement toward reopening the Strait of Hormuz. By early afternoon in London, the Stoxx Europe 600 was up 0.6% and set for a 0.8% advance for the week, the first in four weeks. Even with the bounce, the benchmark sits about 3% below its August high.
Cheaper crude helped cool some inflation worries that had pushed yields higher and stoked expectations of tougher central bank policy. Negotiators from the US and Iran have been discussing a stepwise arrangement that would see Tehran reopen the vital waterway, knocking Brent down to roughly $105.
Banks took the lead. Financials outperformed after a report said UBS Group AG is considering a combination with a foreign bank, lifting its shares 4.2%.
Stock pickers got a reminder that headlines cut both ways. On the upside, Evonik Industries AG jumped 9% following a Financial Times report that BASF SE had proposed a merger to the company and its largest shareholder.
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Households are still feeling the pinch. UK consumer confidence barely ticked higher in September, and retailers keep trailing the broader market. The Stoxx 600 Retail Index is down 4.4% this year, compared with an 8.2% rise for the wider Stoxx 600.
Markets are taking bond market warnings seriously without losing their balance. Or as Guillermo Hernandez Sampere of MPPM, where he is head of trading, put it, "The markets have heeded the warning signals from the bond markets but, thanks to a positive economic environment, remain robust enough to monitor the situation closely and position themselves accordingly as the US midterms approach." For everyday investors, falling oil and steadier yields can ease the inflation squeeze a bit, but the gap between sturdier banks and shakier consumer names is still front and center.
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