Policy positive news + sector rotation European chemical sector records the largest single-day increase in 4 years

During the recently concluded European trading session, the often troubled European chemical sector experienced its largest single-day gain in nearly four years. The wave of “sector rotation” affecting global stock markets, along with rumors of the EU relaxing its carbon emission policies, together drove this surge.

As of the European market close, the Europe Stoxx 600 Chemical Index surged 4.79%. On the individual stock level, BASF rose 4.98%, Air Liquide Group increased 5.71%, Dutch specialty chemicals manufacturer IMCD gained 9.92%, and Belgian Azelis Group closed up 9.53%.

（Europe Stoxx 600 Chemical Index daily chart, source: TradingView）

As a catalyst for the rally, market rumors circulated that the EU plans to extend the deadline for free carbon emission allowances to energy-intensive industries.

According to the EU’s “Emissions Trading System” rules, if companies do not invest enough in clean technology, they must purchase carbon allowances. Some companies receive free allocations, but the European Commission originally planned to significantly reduce free allowances starting this year and to completely phase out free allocations for certain industries by 2034. The EU is also considering slowing the pace of allowance reductions to allow European manufacturing to emit more carbon dioxide.

Citigroup’s European chemicals sector analyst Sebastian Satz explained that the gradual reduction of carbon allowances “has fueled bearish narratives in the industry,” and reversing this trend would ease the sector’s “significant financial burden.”

Another key factor behind Wednesday’s rally was: investors massively withdrew from tech giants and AI-affected stocks, shifting their investments into more traditional stocks that have underperformed in recent years. The former “European stock king,” the German software giant SAP, which just experienced a sharp decline last week, briefly hit a two-year low during the day. Besides chemicals, the telecom and automotive sectors also ranked among the best performers in Europe on Wednesday.

In response to the latest round of sell-offs, JPMorgan’s European software industry analyst Toby Ogg lamented: “In the current market environment, this sector is not only under ‘presumed guilt,’ but also facing a ‘pre-judgment.’ For software companies, beating expectations is no longer enough to impress the market.”

(Article source: Cailian Press)