European stocks experienced a rise in a busy session marked by earnings reports and the European Central Bank’s decision to maintain interest rates for the third consecutive meeting. The Stoxx Europe 600 index gained 0.3% at the close in London, with technology stocks outperforming while automotive shares lagged.
The European Central Bank opted to leave the deposit rate at a record high of 4%, in line with expectations. President Christine Lagarde’s indication that the ECB might consider lowering interest rates from around mid-2024 was interpreted by markets as a signal that earlier moves are still on the table. Lagarde noted that consumer prices have seen minimal increases recently, but the ECB must monitor wage developments to avoid premature interest rate cuts that could disappoint markets throughout the year.
In parallel, data revealed that the US economy surpassed expectations in the fourth quarter, with robust growth driven by subdued inflation, encouraging consumer spending, and defying recession predictions. On a different note, US weekly jobless claims exceeded estimates, reaching 214,000.
Despite the strong GDP print, the market response was positive, and signs of weakness in the labor market were perceived as more significant. The Stoxx Europe 600 index saw technology stocks leading the gains, while automotive shares faced a decline.
Individual stock movements included Givaudan SA boosting the chemicals sector, STMicroelectronics NV experiencing a drop as its sales outlook fell short of estimates, Nokia Oyj climbing after a better-than-expected fourth quarter, and Publicis Groupe SA rising due to revenue beating expectations. Publicis Groupe also announced plans to invest €300 million ($327 million) in artificial intelligence over the next three years.
While the earnings season is still in its early stages, data showed that 73% of the 12 companies on the MSCI Europe Index reported through Wednesday missed earnings-per-share estimates. Consensus estimates project negative earnings-per-share growth of 9.2% compared to a year ago.
Investors closely monitor the earnings season, assess monetary policy, and evaluate economic health amid mixed performance in European stocks during January after a strong rally in the previous two months. Some analysts suggest the current equity rally last another six months, presenting an opportunity for further returns, particularly with expectations of rate cuts due to disinflation.
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Author Faith Yakubu