European mining shares rose 3 per cent on Tuesday, underpinning Europe’s benchmark STOXX 600 index as the global reflation trade in the wake of Donald Trump’s victory in the US presidential election continued.
The pan-European STOXX 600 index was up 0.6 per cent by 0924 GMT after climbing to its highest level since November 10. The index extended the previous day’s gains of 0.25 per cent and mirrored a rise on Wall Street.
All three major US stock indexes set record closing highs on Monday. Small caps also advanced, pushing the Russell 2000 index to a record high close, with the session marking the first time all four indexes hit closing records on the same day since December 31, 1999.
The European Basic Resources index, which has now doubled from its January lows, was the best performing sector index. It was up 3 per cent after the prices of major industrial metals such as copper and aluminuim increased.
“I am fairly bullish on miners and banks and have an 'overweight' recommendation on both the sectors. The focus of markets has shifted to the expected increase in infrastructure and defense expenditure in the United States,” Christian Stocker, strategist at UniCredit in Munich, said.
“As a result of such 'reflation expectations', long-term bond yields have been increasing and industrial metals have been rallying. The reallocation that has started in these sectors will continue.”
Shares in Anglo American, BHP Billiton, Glencore, Rio Tinto and Antofagasta advanced 3.4 to 5.2 per cent.
The STOXX Europe 600 Oil and Gas index was up 1.3 per cent, while European banks rose 1 per cent.
European shares slumped in a knee-jerk reaction after results showed in early November that Trump had won the US presidential election. However, the market rebounded the same day and has gained 4.5 per cent from an intra-day low on November 9.
Equities were boosted by Trump’s election promises to increase investment in infrastructure projects and work on a fiscal stimulus programme. However, the lack of policy details have prompted investors to stay cautious.
“Political uncertainty in the United States has diminished substantially even though we do not know the shape of Trump's policies and government appointments yet,” Lorne Baring, managing director of B Capital Wealth Management, said.
“The market is reacting to the better political environment and, bar the Italian referendum which will probably be another source of concern, there is a sigh of relief that the year's turbulent and somewhat surprising politics are behind us.”
Italy’s Prime Minister Matteo Renzi has said he could resign if he loses the December 4 referendum on constitutional reforms.
Elsewhere, Rotork shares surged more than 11 per cent after the Valve maker said it expected its revenues coming towards the top end of market expectations.
Genmab rose 3 per cent after the company received US approval for a drug, while Essilor shares, down 6.8 percent, were poised for their worst day in eight years after the firm cut its outlook.