Commodities

Banks' gains keep European shares afloat after Lufthansa warning

Credit: REUTERS/STAFF

European stock markets opened flat to marginally higher on Monday as a Deutsche Bank and HSBC-led rise in banking shares offset a fall in airlines following a profit warning from Germany's Lufthansa.

By Amy Caren Daniel and Medha Singh

June 17 (Reuters) - European stock markets opened flat to marginally higher on Monday as a Deutsche Bank and HSBC-led rise in banking shares offset a fall in airlines following a profit warning from Germany's Lufthansa.

Deutsche DBKGn.DE, which has been cutting back and reorganising for months, gained 3% after the Financial Times reported that the German lender is planning to create a "bad bank" that would house or sell assets valued at up to 50 billion euros.

Asia-focused Standard Chartered STAN.L and HSBC HSBA.Lalso rose about 1%, tracking a rise in Asian markets after Hong Kong's leader Carrie Lam climbed down on the extradition bill at the centre of a week of protests in the city.

The pan-European STOXX 600 index .STOXX rose 0.04% by 0800 GMT, with the travel and leisure sector .SXTP underperforming the other major European sectors.

Lufthansa LHAG.DE plunged 12.3%, and was the biggest percentage faller on the STOXX 600, after the group lowered its profit outlook for the full year 2019, citing price competition from low cost rivals in Europe.

"Lufthansa signaling a weak outlook is hitting all these bigger carriers and that's definitely one negative element this morning," said Chris Beauchamp, chief market analyst at IG.

International Consolidated Airlines (IAG) ICAG.L fell 3.2%, while budget airlines EasyJet EZJ.L and Ryanair Holdings RYA.I slipped at least 4%.

Banking stocks .SX7P rose 1% ahead of a pivotal Federal Reserve policy meeting starting Wednesday where investors on balance think an interest rate cut is unlikely while backing a shift towards one in July.

"Overall there is positivity in markets that we might see a bit more dovish Fed this week. Though we probably will not see any action from the Fed, the commentary could be more dovish," Beauchamp said.

A swing in money market pricing towards up to three rate cuts by the Fed this year have been at the heart of a recovery for stock markets this month after their worst falls in months in May.

The rally has run out of steam in the past week, however, as traders trimmed those expectations from their peaks, and the strength of the dollar against the euro in recent days may offer a fillip to many European companies.

Corporate newsflow continues to show a plethora of business problems, ranging from Brexit and nervousness among consumers to Italy's budget problems and the range of pressures on many airlines.

UK-based Kier Group Plc KIE.L tumbled 11.4% after the construction and services group said it would cut 1,200 jobs, sell non-core businesses and suspend its dividend for two years in an attempt to lower debt.

Babcock International Group Plc BAB.L gained 4.6% after the engineering services group confirmed it had rejected a buyout offer from rival Serco Group SRP.L in January.

(Reporting by Amy Caren Daniel in Bengaluru; editing by Patrick Graham)

((Amy.CarenDaniel@thomsonreuters.com ; within U.S. +1-646-223-8780; outside U.S. +91 80 6749 9250 ; Reuters Messaging: Amy.CarenDaniel.thomsonreuters.com@reuters.net;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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