A multi-billion pound merger between British supermarket Sainsbury's and Asda shook up retail stocks on Monday while European benchmarks ended April with their strongest monthly gains since 2016.
The pan-European STOXX index rose 0.1 percent while Germany's DAX gained 0.3 percent, buoyed by investors' improved risk appetite as companies delivered strong earnings
The regional benchmark delivered a 3.8 percent gain in April, its strongest month since December 2016, after suffering losses in February and March - testament to renewed investor optimism after a volatility shock in February rattled markets.
Big Story
On the day, all eyes were on Sainsbury's, whose shares closed up 14.5 percent after it agreed to merge with Walmart's Asda to create Britain's biggest supermarket group by market share.
The stock was on track for its best one-day gain ever.
"The merger, if successful, creates a retail giant in the UK with enough procurement and distribution scale to dominate food retail and challenge Amazon in non-food," said Berenberg analysts.
The said that Walmart's scale, the e-commerce capabilities of Sainsbury's Argos chain, and the potential synergies between food and non-food retail might be able to challenge Amazon's e-commerce dominance in the UK.
Tesco, which would be overtaken as UK leader by the new merged group, fell 0.9 percent on the news. Morrisons slipped at the opening but finished 1.3 percent higher.
The reaction among European retailers was mixed, too. France's Carrefour gained 0.9 percent and Casino rose 1 percent while Ahold Delhaize declined 0.4 percent.
Advertising Giant
In results-driven moves, the world's biggest advertising group, WPP, surged 8.6 percent after reporting forecast-beating sales in its first results without founder Martin Sorrell.
The agency's gains boosted the pan-European media sector by 1.4 percent to a three-month high.
Earnings have surprised negatively, on average, in the banking sector, while commodity-related sectors have reported surprisingly strong results thanks to higher materials prices, according to Goldman Sachs.
Societe Generale analysts struck a note of caution about investors' high expectations of earnings. "Optimistic consensus earnings growth for the next three years could be a source of disappointment," they wrote in a note entitled Reality check.
News by Reuters, edited by ESM. Click subscribe to sign up to ESM: European Supermarket Magazine.
