European Markets Ended a Fourth Straight Month with Gains

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Principal Points

• European indexes end May in the green, up for a fourth consecutive month
• Efforts to accelerate the vaccine rollout in the EU have increased investors’ confidence

Economic recovery, vaccine rollout and receding coronavirus cases have prompted the major European indexes to close in positive territory for a fourth consecutive month. For the last four months, investors have been increasingly optimistic to hold risk assets, such as stocks, as the eurozone economy is slowly emerging from the pandemic.

Countries across the European continent are gradually reopening, spurring optimism that the economy and markets will return to normalcy after more than a year of harsh lockdowns, double-dip recessions and major health challenges that rocked the foundations of many governments across Europe.

Equities in the biggest European economies have performed particularly well for the month of May. Germany’s DAX advanced 1.21% in May as the largest economy in Europe accelerated vaccination efforts and bolstered investors’ confidence. The French CAC40 index ended Мay with gains of 2.2%, while the Italian FTSE MIB finished even higher, a 3.1% increase for the same period. Spain’s IBEX 35 added 2.9% in May, and the UK’s FTSE100 gained 1.44% as the UK economy was flattered by a strong vaccine rollout.

The broad-based region-wide Stoxx Europe 600 rose 1.55% in May and only in the last full trading week of May it jumped twice to record highs as the continent’s ongoing vaccination rollout and economic reopening gather pace. The strong performance for the pan-continental index in May brought its year-to-date gains to nearly 12% as bourses around Europe have seen new historical highs this year.

European Vaccination Output Boosts Markets

While the vaccine campaign in the EU has been lagging significantly behind the largely successful vaccination programs in other regions, such as the US, the UK and Israel, EU governments have been putting more efforts recently to secure an ample amount of vaccine doses from the authorized manufacturers. On May 20, the European Commission signed a third contract with BioNTech and Pfizer for 1.8bn vaccine doses for all EU members states. The doses must be delivered by end of 2023.

The sanguine outlook on equities in the UK and continental Europe is bolstered by the notion that they look less expensive than their Wall Street peers. Economists point that this makes the European markets look more alluring. Adding to the positive sentiment toward the old continent’s bourses, Bank of America said in a note published last week it remained “positive on European equities” as they enter the final month of the second quarter. The investment firm highlighted that those stocks that are tied to the economic reopening could benefit more in the months leading up to the summer. These stocks include banking firms, luxury goods sellers, and companies from the travel industry such as airlines, cruise lines and hotel chains.

Meanwhile, stocks opened for trading on Tuesday in a relatively subdued tone, continuing their quiet trading from Monday. Yesterday, the UK and the US markets were both closed for public holidays. Overseas, futures contracts tied to US indexes remain virtually flat but positive in pre-market hours on Tuesday as the first trading session of the month is about to kick off.