Europe: Earnings optimism helps shares snap two-day dip

EUROPEAN shares rose on Thursday as upbeat results eased some worries about a profit hit from higher borrowing costs, while US economic data bolstered hopes of a soft landing.

The pan-European Stoxx 600 rose 0.4 per cent after two consecutive days of declines.

Most Stoxx 600 sectors were up, led by a 2.2 per cent rise in retailers, followed by financial services and banks which climbed 1.9 per cent and 1.6 per cent respectively.

STMicroelectronics shares jumped 8.2 per cent after the chipmaker beat fourth-quarter sales and earnings expectations, boosting the wider technology sector.

Spanish bank Sabadell soared 11.2 per cent to hit an over three year high on an upbeat full-year outlook, while Finnish telecoms equipment maker Nokia rose 4.0 per cent after beating quarterly operating profit expectations and forecasting higher 2023 sales.

Along with corporate earnings, the market focus is now on upcoming interest rate decisions from the Federal Reserve and the European Central Bank (ECB) next week.

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“Earnings reports are better than markets are expecting. The China reopening has lifted the mood and so (when) you put that all together, things are not as bad as perhaps they could have been,” said Giles Coghlan, chief market analyst at HYCM.

Data showed the US economy grew faster than expected in the fourth quarter, but momentum had slowed significantly by the end of the year, with higher interest rates eroding demand.

“On balance it (the data) is reasonably positive and it just really puts the focus on the Fed next week. What investors are banking on is that the Fed will announce some kind of pause to come (and) that’s what’s driving that positive sentiment at the moment around stocks,” said Coghlan.

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However, the ECB is widely expected to hike rates by 50 basis points next week, with policymakers backing the case for interest rates to keep rising further in order to bring inflation down to the central bank’s target.

European equities have rallied this year after sharp declines in 2022 on hopes that major central banks would slow the pace of their interest rate hikes and potentially pause them soon as inflationary pressures ease.

Expectations that the euro zone economy will make a soft landing in 2023 have grown due to China’s reopening, a milder winter in Europe and the region’s ramped-up energy capacity.

Earnings for Stoxx 600 companies are expected to have increased 9.5 per cent in the fourth quarter from a year earlier, down from 10.7 per cent a week ago, Refinitiv data showed. REUTERS