European stocks take breather as focus shifts to positive earnings

BLOOMBERG

European stocks steadied on Thursday after the biggest three-day drop since October as traders re-calibrated their wagers on the timing and extent of interest rate cuts. Signs that European policy makers are converging around a June rate reduction helped calm markets, along with indications that Chinese state funds are coming to the rescue of equities battered by signs of a flagging economy. That allowed investors to shift focus on Thursday to positive earnings news.
The Stoxx Europe 600 index was little changed at the open, having slumped almost 2% in the first three days of the week. China’s benchmark CSI 300 Index gained as much as 1.4%, erasing an intraday drop of 1.8%, as a surge in ETF trading pointed toward state funds’ involvement. S&P 500 futures were flat while Nasdaq 100 contracts edged higher.
“The question now is — will the repricing continue and if so, until when?” said Evelyne Gomez-Liechti, a strategist at Mizuho International. “We believe there is a chance that markets continue to push back against the 2023 ‘Santa rally,’ but only if data and central bankers encourage it.”
Among individual movers in Europe, gambling group Flutter Entertainment Plc soared more than 10% after reporting results roughly in line with analysts’ estimates. Cartier owner Richemont surged 7% after topping analysts’ sales estimates. Technology stocks outperformed after Taiwan Semiconductor Manufacturing Co, the main chipmaker for Apple Inc and Nvidia Inc, said it expects a return to solid growth this quarter. ASML Holding NV rose about 2.3%, while ASM International NV jumped more than 3%. Treasuries climbed after further selling, which was concentrated on the short end of the curve. The policy-sensitive two-year yield fell four basis points after jumping 14 basis points, its biggest one-day gain since June.
The dollar edged lower against major peers, snapping a four-day rally. The drop in bond prices reflected a shift in investor expectations for a Fed rate cut in March. Swaps pricing shows the chances of such a cut slipped below 60% for the first time since the middle of December. That’s down from 80% on Friday. The decline followed comments from Fed officials pushing back against market expectations for imminent cuts and stronger-than-expected retail sales data. Bumper consumer spending helped propel the economy in recent weeks, the Fed said in its Beige Book survey.
Meanwhile, European Central Bank President Christine Lagarde and several of her colleagues signaled the chance of a rate cut around mid-year, when they’ll know more about inflation, wages and the stuttering economy. Pakistan’s stock benchmark fell as much as 1.6%.
Gold rose after falling more than 1%. West Texas Intermediate traded above $73 per barrel while Bitcoin reversed losses to trade above $42,700. The Stoxx Europe 600 was little changed in London. S&P 500 futures were little changed. Nasdaq 100 futures rose 0.2%.