Europe: Shares close higher after ECB leaves rates unchanged

EUROPEAN stocks closed higher on Thursday after the European Central Bank held interest rates steady as expected, while investors cheered strong earnings from major banks and easing trade tensions with the United States.

The pan-European Stoxx 600 index finished the session 0.24 per cent higher at 551.55, having earlier touched a six-week high.

Stocks pulled back from their peaks as investors recalibrated their expectations for future monetary easing after ECB President Christine Lagarde said policymakers were more keen on the outlook on trade and its impact on the economy before deciding on further interest rate cuts.

Interest rate futures markets reflected this shift in sentiment, with traders scaling back bets on a September rate cut. The yield on the 2-year German bond also spiked, and weighed on equity markets.

“At 2 per cent, rates remain squarely to the middle of the ECB’s 1.5 per cent to 2.5 per cent neutral range. Uncertainty is highly elevated, however, and, if trade tensions escalate, further easing may well be required later in the year to help support business and consumer confidence,” said Marchel Alexandrovich, an economist at Saltmarsh Economics.

The central bank’s cautious stance comes as eurozone inflation has returned to the ECB’s 2 per cent target alongside signs of economic resilience.

Still, sentiment was largely buoyant on expectations of a US-EU trade deal after the European Commission said that an agreement was within reach, where tariffs on European exports to the US would likely settle down at 15 per cent from a harsher 30 per cent levy planned from Aug 1.

In a busy day for corporate results, banks were in a bright spot after second-quarter profit beats from Deutsche Bank and BNP Paribas.

German lender Deutsche Bank jumped 9.1 per cent, while French bank BNP Paribas added 0.4 per cent after a near 3 per cent jump earlier in the day. The eurozone banks index touched its highest since 2008.

Reckitt raised its annual revenue forecast after the consumer goods company’s second-quarter net sales growth topped expectations, sending shares soaring 10 per cent.

Cooling trade tensions have lifted the Stoxx 600 about 18 per cent from its lows in April after US President Donald Trump slapped steep tariffs on its trading partners. The index still remains about 2 per cent away from its March historic high.

Roche gained 1.4 per cent after the Swiss drugmaker reported better-than-expected first-half operating profit, while Deutsche Telekom rose 5 per cent after its US subsidiary T-Mobile posted strong second-quarter results. Both were among the major boosts to the benchmark Stoxx 600.

Meanwhile, Nestle dropped 4.6 per cent after the Swiss consumer major announced a strategic review of its vitamins business and posted first-half results.

Chipmaker STMicro slumped 16.6 per cent – its biggest one-day drop on record – after its first quarterly loss in more than a decade, in contrast to other tech titans Alphabet and SK beating earnings expectations.

On the data front, a latest survey showed euro zone business activity accelerated faster than forecast this month. REUTERS