Oil stocks and Ocado buoy European equities

European shares rose on Thursday to a fresh 3-1/2 month high as oil stocks rallied and online supermarket Ocado shot up after it signed a game-changing deal in the United States.

The pan-European STOXX 600 ended up 0.7%, while Italy’s benchmark index bounced 0.3% following heavy losses in the previous session on concerns that a new government could relax fiscal discipline.

Italian stocks had tumbled more than 2% on Wednesday after a leaked draft coalition programme indicated that the parties planned to ask the European Central Bank to forgive 250 billion euros ($296 billion) of Italian debt.

“We’ve got to keep a very close eye on the 5-Star Movement … and if they’re going to try to put their foot down in any way,” said Jasper Reimers, market analyst at Vertex Capital Group.

Even though Italian banks have gained nearly 10% so far this year, Reimers was wary of the sector.

“Not just Italian (banks), there are Portuguese and Spanish as well, the stuff we are very, very bearish on. It’s not something that we would want to be putting long-term money into,” Reimers added.

Britain’s FTSE 100 rose 0.7% to a new record high, shrugging off a rise in sterling following a report late on Wednesday that Britain will tell Brussels it is prepared to stay in the European Union’s customs union beyond 2021. Prime Minister May insisted that Britain was leaving the EU customs union, however.

Shares in online supermarket Ocado surged 44% to an all-time high after the company signed a deal with US retailer Kroger Co to use Ocado’s technology for grocery deliveries in the world’s biggest market.

“The short sellers were hoping Ocado wouldn’t deliver on its international expansion plans. That position now looks like a badly busted flush,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.

“It’s probably no coincidence that a number of deals have been flushed out since Amazon announced a takeover of Whole Foods last summer,” Khalaf added.

Altice jumped 12% after its French unit showed the first signs of recovery in the first quarter, while French waste and water group Suez rose 3.1% after higher waste volumes boosted its first-quarter core earnings.

Shares in Maersk, broadcaster RTL and Royal Mail all fell between 7.1 and 8.9% after giving updates.

Overall, European earnings have seen decent growth in the first quarter, though not on a par with the United States. Over 80% of MSCI EMU firms have now given updates, and Q1 earnings growth is clocking in at 13.7% year-on-year in dollar terms, according to Thomson Reuters I/B/E/S.

Shares in British bookmakers also came under pressure after the UK government cut the top stake on fixed-odds betting terminals from 100 pounds to two. William Hill recovered all losses to end 4.2% higher, while both GVC and Paddy Power Betfair also turned positive.

Oil stocks continued to gain, sending their sectoral index up 1.5% to its highest close since July 2014. Shares in oil majors Royal Dutch Shell, Total and BP all rose between 1.4 and 1.9%.

Oil prices climbed above $80 a barrel for the first time since November 2014 on concerns that Iranian exports could fall because of renewed US sanctions, reducing supply in an already tightening market.