Europe: Shares choppy after ECB signals no more rate cuts, UK votes

[LONDON] European shares wobbled on Thursday after the European Central Bank signalled an end to rate cuts and as Britons voted in a general election, though stronger banks and miners lent support.

The Stoxx 600 ended a choppy session flat in per centage terms, while Britain's blue chip FTSE index was down 0.4 per cent.

European equities hit a session low while banking stocks briefly turned negative after the ECB cut its inflation forecasts for the euro zone and signalled that it would not cut interest rates further.

Euro zone banks also touched a session low and were last up 0.5 per cent.

"The biggest surprise has been that the ECB downgraded its inflation forecast and thereby automatically implies... that it will provide monetary accommodation for quite a substantial time to come," Dr Frank Engels, head of multi-asset and investment committee at Union Investments, said.

"In essence, it means the low interest rate environment will remain for quite a long time and that will be a headwind to the profitability of banks," Union Investments' Dr Engels added.

The pan-European benchmark has struggled since hitting a 21-month high in May with investors seeking fresh catalysts after a rally fuelled by strong earnings and record inflows.

On Thursday, the congressional testimony in the US from ex-FBI director James Comey, who was fired by President Donald Trump last month, also kept investors on the edge.

"Markets are longing for more certainty, which will be needed in order to post the next leg higher. Today and tomorrow certainly have the potential to provide traders with a clearer outlook where the UK, the US and the Euro-zone is concerned," said Markus Huber, a trader at City of London Markets.

In Britain, opinion polls on Wednesday showed that Prime Minister Theresa May was on course to increase her majority in parliament in Thursday's election, helping sterling.

Bank stocks rose for a second day following the swift rescue of Spain's Banco Popular by bigger rival Santander, and Italian banks also recovered following on reports they could join the state in the rescue of troubled regional lenders in the Veneto region.

A source familiar with the matter said Rome was putting pressure on heavyweights Intesa SanPaolo and UniCredit to take part so that other banks would follow their example. Intesa rose one per cent higher and UniCredit gained 3.2 per cent.

The broader euro zone bank index gained 1.8 per cent.

"The important thing is to get a solution fast and remove the uncertainty," Stefano Fabiani, fund manager at Zenit said.

"Santander wobbled a bit early yesterday but then it went positive. And it's the same thing here." Santander in Madrid rose 5.2 per cent.

While a 1.2 per cent rise in basic resources also helped broader gains, Utilities were another bright spot with RWE and E.ON rising 2.3 and 4.2 per cent respectively, adding to their rally in the previous session after a nuclear energy tax which penalised them was scrapped.

REUTERS