European shares rose on Monday, helped by a rise in commodity prices as investors continued to buy cyclical stocks and sell defensives on bets that the US presidential election result might revive inflation globally. The pan-European STOXX 600 closed up 0.3 percent. It rallied 0.5 percent last week, and is up 1.6 percent since the surprise election of Donald Trump as president on November 8.
While markets were volatile around the election, there is hope that his planned fiscal stimulus will boost inflation. That has helped to lift cyclical stocks that are sensitive to growth, and hindered defensives - a trend which continued on Monday. "Despite uncertainty on how Mr Trump's plans will affect growth, the market expects further fiscal spending and as a result cyclicals sectors have benefited," analysts at Goldman Sachs said in a note.
Cyclical sectors such as basic resources, autos and energy were among the top gainers, up 0.9-2.2 percent. Oil shares were supported by a surge in the price of Brent after it seemed that major oil producers were moving closer towards an agreement to limit output. Staffing - or recruitment and hiring - firms also rose, after HSBC upgraded the sector. The likes of Ranstand, Hays and Adecco were up 1.5-3.4 percent after all were upgraded to "buy" from "hold".
"Staffing companies are as seen as natural inflation hedges," analysts at HSBC said in a note. "Donald Trump's proposals include cutting taxes and increasing infrastructure spend. If carried out, the higher fiscal spending should lead to a high inflationary environment in coming years."
The rotation caused weakness in defensive stocks, with pharmaceutical firms down 0.5 percent. France's CAC closed up 0.6 percent, an outperformer after former president Nicolas Sarkozy was surprisingly knocked out of the running to be a presidential candidate in next year's election.
Worries that next month's Italian referendum on constitutional reform could create political instability hindered the Italian bluechip FTSE MIB, which underperformed slightly. It dropped to hit its lowest point since end-September as investors priced in a possible rejection of Prime Minister Matteo Renzi's reform plan. However the index later recovered to close 0.2 percent higher, though lagging French and Portuguese indexes.
Investors are concerned that if Renzi loses the referendum, as current polls forecast, the Italian government would fall into a serious crisis, threatening to destabilise the whole euro zone ahead of a string of national elections next year. "The growing focus on political risk is contributing to Italian assets' difficulties," said JCI Capital portfolio manager Alessandro Balsotti. He noted how continued uncertainty over multi-billion-euro capital increases at UniCredit and Monte dei Paschi di Siena had also been weighing.
German chip designer Aixtron fell more than 5 percent after a US regulator acted to stop a planned Chinese take-over. The move raised concerns that the deal would not go through. "It is totally unclear whether the acquisition by Chinese investors will take place," said DZ Bank analyst Harald Schnitzer, who has a sell rating on the stock.
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