Dovish ECB and upbeat earnings support euro-zone stocks

ECB pledges to keep interest rates at record lows for even longer

US markets were mixed on Thursday as a report showed jobless claims increased last week while the country still reckons with the economic impact of the Covid-19 pandemic and yields on safe-haven assets such as US treasuries were little changed.

US markets were mixed on Thursday as a report showed jobless claims increased last week while the country still reckons with the economic impact of the Covid-19 pandemic and yields on safe-haven assets such as US treasuries were little changed.

 

European stocks rose for a third session on Thursday after the European Central Bank (ECB) pledged to keep interest rates at record lows for even longer, while strong corporate earnings underpinned optimism about an economic recovery.

Euro-zone shares rose as much as 1.2 per cent after the central bank said it would not hike rates until it saw inflation reach its 2 per cent target “well ahead of the end of its projection horizon and durably”.

The index closed up 0.8 per cent. But the rate-sensitive euro-zone banking index fell 0.2 per cent, with government bond yields on the decline.

The region-wide Stoxx 600 rose 0.6 per cent, recovering fully from its worst sell-off in 2021 earlier this week, leaving it just 1 per cent away from record highs.

“This news should be a short-term positive for European stocks and the overall recovery trade, providing additional support especially amidst rising nerves over the Delta [coronavirus] variant,” said Xian Chan, chief investment officer of wealth management at HSBC.

Dublin

Bank of Ireland traded flat at €4.10 after it confirmed that it had reached a deal to buy troubled stockbroker Davy’s core capital markets and wealth-management businesses for an enterprise value of €440 million, with the possibility of up to €40 million of further payments from 2025, subject to the performance of the business.

Rival AIB, meanwhile, traded down 1.8 per cent at €1.89 as the ECB confirmed a more dovish path for interest rates. Ryanair was one of the Iseq’s strongest movers, up 1.8 per cent to €15.85, as Europe’s airline sector was boosted by a pick-up in demand for travel on foot of the easing of restrictions in several countries.

British airline EasyJet said this week it was confident on demand for the summer and autumn. The growing uneasiness over the Delta variant and the possibility of its stalling the economic recovery saw hotel chain Dalata fall 1 per cent €3.70. Insulation maker Kingspan was another strong mover, up 2.5 per cent to €88.62.

London

London’s FTSE 100 ended lower on Thursday, weighed down by weakness in Unilever shares after it cut its full-year margin forecasts coupled with a fall in energy stocks, while the mid-cap index rose on a set of positive corporate results.

The blue-chip FTSE 100 index dropped 0.4 per cent with Unilever being the main drag, while energy stocks fell 1.6 per cent, despite a jump in oil prices. Unilever was down 5.9 per cent after it warned that surging commodity costs would squeeze its full-year operating margin, overshadowing strong second-quarter sales growth.

“Markets appear to be caught in a pincer movement between concerns over rising inflation and slowing growth . . . this is no better reflected in the latest numbers from Unilever,” said Michael Hewson, chief market analyst at CMC Markets. However, commentary from Bank of England’s deputy governor Ben Broadbent helped calm some of the inflation fears after he said the current spike in prices is unlikely to create longer-term inflation pressures.

Europe

ECB president Christine Lagarde warned a fresh wave of the pandemic could pose a risk to the euro zone’s economic recovery. Travel and leisure stocks topped sectoral gains again, rising 2.6 per cent.

The index had hit a five-month low on Monday on fears over the growing spread of Delta variant. In earnings-driven moves, private equity firm EQT jumped 12.8 per cent to the top of Stoxx 600 after reporting upbeat first-half earnings, while Swiss engineering company ABB hit its highest since November 2007 after it doubled its full-year sales outlook.

But Unilever warning that surging commodity costs would squeeze its full-year operating margin sent its shares to three-month lows. Sweden’s Nordic Entertainment surged 10.3 per cent after reporting a rise in subscribers and quarterly operating income, while Italy’s Monte dei Paschi jumped 3.7 per cent after the lender and its former top investor reached a preliminary accord to settle their legal disputes.

Swiss drugmaker Roche slid 3.6 per cent after flagging an anticipated slowdown in demand for Covid-19 tests.

New York

US markets were mixed on Thursday as a report showed jobless claims increased last week while the country still reckons with the economic impact of the Covid-19 pandemic, and yields on safe-haven assets as US treasuries were little changed.

The Dow and S&P 500 fell in response to two-month highs in the number of Americans filing new claims for unemployment benefits. Drugmaker Biogen gained 0.8 per cent on raising its full-year revenue expectations. Southwest Airlines fell 3.3 per cent after it posted a bigger-than-expected quarterly loss, pushing the S&P 1500 Airlines index down 2.1 per cent.

American Airlines Group reported a quarterly profit, but its shares fell 1.9 per cent. – Additional reporting by Reuters