European stocks stage comeback from two-month lows

European stocks rose from two-month lows on Tuesday, as bargain hunters returned to buy beaten-down shares following a bruising selloff on worries about a sharp slowdown in global economic growth.

The pan-European STOXX 600 index rose 0.7%, with almost all sectors in positive territory.

Global stocks have been hammered in May, with high-growth stocks bearing the brunt on worries that major central banks will aggressively raise interest rates to curb inflation. On Wall Street, the tech-heavy Nasdaq dropped had more than 4% in the previous session before bouncing back on Tuesday.

The STOXX 600 has shed 6.7% in May as China’s COVID-19 lockdowns, the Ukraine war and worries about quicker interest rate hikes overshadowed an upbeat quarterly earnings season.

“We’re in this process where liquidity is being withdrawn and hope is confronted with reality, and that makes it a bit difficult,” said Sebastien Galy, senior macro strategist at Nordea Asset Management.

“Tactically, people might buy on the dip but it doesn’t mean that it’s attractive.”

The European Central Bank policymakers are also becoming more vocal about normalising monetary policy more quickly with inflation running at a record high in the euro zone.

Data showed German investor sentiment rose slightly in May on expectations the economic situation in Europe’s largest economy will deteriorate less markedly than predicted previously as the European Central Bank acts to tame inflation.

But analysts say that the increase is not enough to be hopeful.

“The small rise in the ZEW measure of German investor sentiment in May left it still very low,” said Jack Allen-Reynolds, senior Europe economist at Capital Economics.

“And the current conditions index fell further, which is consistent with our view that the economy will contract in Q2.”

Among individual stocks, Swedish Match AB surged 24.9% after U.S. tobacco company Philip Morris International Inc said it was in talks to buy the smaller rival.

Agriculture and pharmaceuticals company Bayer jumped 5.4% after better-than-expected quarterly adjusted earnings on strong gains at its seeds and pesticides business.

Norwegian aerospace and defence company Kongsberg Gruppen slid 18.9% after reporting a fall in earnings before interest, tax, depreciation and amortization due to logistics challenges and component shortages.

French carmaker Renault Group dipped 0.4%, giving back gains after China’s Geely Automobile Holdings agreed to acquire around 34% of Renault Korea Motors for 264 billion won ($206.79 million).