European stocks edged higher on Thursday, nearly erasing losses sustained since Russia's invasion of Ukraine, as investors weighed geopolitical concerns against an optimistic tone by the US's central bank, the Federal Reserve.
The pan-European Stoxx 600 Index closed up 0.5 per cent after earlier dropping as the Kremlin denied major progress in peace negotiations. Energy and construction sectors outperformed, while automakers and retailers dropped.
The Iseq overall index advanced 0.6 per cent to 7,472.59 in very thin St Patrick's Day trading, with CRH gaining 1.4 per cent to €40.50 as the building materials company extended its share buyback programme with a plan to repurchase a further $300 million (€271.7 million) of its shares by the end of June.
Bank of Ireland, which is by far the most exposed Irish retail bank to the UK market, dropped 2 per cent to €5.87 as the Bank of England accompanied a 0.25 percentage point rate hike, its third since December, by playing down the need for more increases for the time being to rein in inflation. Banks' lending margins and income tend to improve in an environment of rising rates.
Irish Ferries owner Irish Continental Group was also in focus – declining by 1.6 per cent to €3.64 – as sector followers monitored a decision by rival P&O Ferries to suddenly suspend all services and sack its 800 seafaring crew.
The FTSE 100 climbed 1.3 per cent with oil majors Shell and BP gaining 3.2 per cent and 2.1 per cent respectively, tracking a rally in crude prices over supply concerns.
Shares in global companies including Diageo and British American Tobacco rose – in their case by 2.8 per cent and 1.2 per cent respectively – while sterling weakened on the rate hike news.
Banks edged lower as investors saw the central bank’s stance on further monetary tightening to be less hawkish than expected.
"In the longer run, we expect them to benefit from higher interest rates, though rising inflation pressures could tame appetite," Ipek Ozkardeskaya, senior analyst at Swissquote, said.
The Bank of England said inflation was set to reach around 8 per cent in April, almost a percentage point higher than it forecast last month, and warned it could rise further later in the year.
Among individual stocks, Ocado Group fell 8.2 per cent after Ocado Retail, its joint venture with Marks & Spencer, cut its annual sales forecast.
Germany's Thyssenkrupp fell 9.4 per cent, after suspending its 2021-2022 forecast for free cash flow before mergers and acquisitions due to the Ukraine crisis, and said it was unclear if it would still be able to spin off its steel division.
France's water and waste management firm Veolia rose 2.8 per cent after estimating net income would grow by more than a fifth this year.
US stocks were ahead in early afternoon trading, following a rally in the previous session as investors assessed the path laid out by the Federal Reserve for interest rate hikes, while closely tracking the Russia-Ukraine peace talks.
Technology fell the most after advancing on Wednesday. The banks index also tumbled.
The US central bank on Wednesday raised interest rates by 0.25 percentage points, as expected, and forecast an aggressive plan to push borrowing costs to restrictive levels next year.
Meanwhile, Western officials said Ukraine and Russia are taking peace talks seriously but a very big gap remains between the two sides, adding Russian president Vladimir Putin did not seem in the mood to compromise.
"There is mass confusion right now, which is leading to the increased volatility in a choppy market," said Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas.
“We don’t know what the next headline coming out of the Ukraine is, we don’t know how that resolves and we don’t know how the market and economy is going to handle the rate hikes. Oil and commodity price inflation is a whole another worry and concern.”
Ralph Lauren gained 3.1 per cent after JP Morgan upgraded the affordable luxury apparel maker's stock to "overweight" from "neutral".
– Additional reporting: Reuters, Bloomberg