M&A rush and earnings power European stocks to new highs

European stocks scaled fresh peaks on Monday, driven by dealmaking activity and strong results from Europe's biggest bank HSBC, with a rebound in Asian stocks also helping set a bright start to August.

The pan-European Stoxx 600 index rose 0.6 per cent to hit an all-time high of 464.5 points, with retailers, automakers and miners among the top performers.

British aero-engineer Meggitt soared 58.2 per cent to hit a lifetime high after US industrial firm Parker-Hannifin said it would buy the UK rival in a deal valued at $8.76 billion.

Among other deals, British asset management services provider Sanne Group jumped 7.9 per cent after it said it could get a takeover bid from fund servicer Apex Group.

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UK’s midcap index gained 0.6 per cent, while the blue-chip FTSE 100 index added 0.8 per cent.

Earnings

In earnings, Asia-focussed lender HSBC inched up 0.5 per cent after it beat forecasts for first-half pretax profit and reinstated dividend payments.

French insurer Axa gained 2.5 per cent after it posted a 180 per cent surge in first-half net income, while German rival Allianz tumbled 6.4 per cent after US regulators started a probe relating to Allianz Global Investors' Structured Alpha Funds.

Of the more than half of the Stoxx 600 companies that have reported second-quarter results so far, 67 per cent have topped profit estimates, as per Refinitiv IBES data.

"Having reached all-time highs post 1Q [first quarter] results, the breadth of positive EPS [earnings per share] revisions in Europe remains very strong both in absolute terms and versus peers," European equity strategists at Morgan Stanley said in a note. "Europe now sees the best earnings revisions of all global regions."

Manufacturing activity

Meanwhile, a survey showed manufacturing activity across the euro zone continued to expand at a blistering pace in July, but supply bottlenecks sent input costs soaring.

Optimism around European earnings and economic reopening helped the benchmark Stoxx 600 end July with a sixth straight month of gains despite concerns about inflation, soaring virus cases in Asia and a major regulatory crackdown in China.

British jet and auto parts supplier Senior jumped 4.3 per cent after it reported a first-half profit compared with a loss a year earlier. Peer Melrose gained 6.2 per cent, while Rolls-Royce added 3.5 per cent.

The world's second-largest brewer Heineken inched up 0.6 per cent after reporting first-half earnings above expectations, but warned rising commodity costs would eat into margins.

German carmaker Daimler rose 2.2 per cent after Goldman Sachs added the stock to its conviction list. – Reuters