Europe: Upbeat earnings, banks lift shares

EUROPEAN stocks rose on Tuesday (May 3) after a string of upbeat earnings, while banking shares gained as government bond yields hit fresh highs in anticipation of quicker interest rate hikes by global central banks to tackle surging inflation.

The pan-European STOXX 600 index climbed 0.6 per cent, rebounding from a “flash crash” in the previous session caused by a single sell order trade by Citigroup Inc.

Economically sensitive sectors such as banks, oil and gas, and automakers advanced about 2 per cent each, leading Tuesday morning gains as German 10-year bond yields hit 1 per cent for the first time since June 2015.

Overnight, the United States 10-year Treasury yield hit 3 per cent for the first time since December 2018 ahead of a Federal Reserve meeting on Wednesday, where policymakers are expected to hike rate by 50 basis points to contain soaring prices.

European stocks are coming off a rough April, when worries about aggressive monetary policy tightening, China’s Covid-19 lockdown and the Ukraine conflict stoked concerns about a sharp global economic slowdown.

“The narrative so far this year has very much been inflation and interest rate driven. What the markets are trying to assess now is a slowdown in global growth and what impact that has on monetary policy going forward,” said Dan Boardman-Weston, chief executive officer at BRI Wealth Management.

“What you’re seeing at the moment is a tussle in markets as to which forces are going to win – is it going to be inflation or recession or stagflation which is the worst of both worlds.”

French bank BNP Paribas jumped 3.4 per cent as it posted a better-than-expected 19 per cent rise in net income as trading boomed and reaffirmed its medium-term profitability targets.

German logistics company Deutsche Post rose 0.7 per cent after it reported higher first-quarter revenue and operating profit and confirmed its financial targets for 2022 to 2024.

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Norwegian aluminium maker Norsk Hydro dropped 4.7 per cent as it reported record quarterly profits that beat expectations, but also warned of rising costs ahead due to inflation and logistics disruptions.

Nearly half of the STOXX 600 companies have reported first-quarter results so far, and 71 per cent of those have topped analysts’ earnings estimates, as per Refinitiv IBES data, with the biggest beats coming from energy and materials sectors.

BP rose 3.1 per cent as a strong operational performance on the back of rocketing oil and gas prices helped the British energy firm step up share buybacks.

In contrast, German chemicals maker Covestro slid 6.7 per cent after it warned Covid-19 lockdowns in China will significantly affect business in the second quarter. REUTERS