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European stocks muted as investors weigh recovery, earnings and BoE decision

Tom Belger
·Finance and policy reporter
·3-min read
Bank of England Governor Andrew Bailey. Photo: Tolga Akmen/WPA Pool/Getty Images
Bank of England Governor Andrew Bailey. Photo: Tolga Akmen/WPA Pool/Getty Images

European stocks were trading close to flat on Thursday, amid growing optimism about economic re-opening but a string of mixed earnings reports.

Investors also weighed up the latest policy moves by central banks in the UK and China. Bank of England (BoE) policymakers left their stimulus tools unchanged, with interest rates remaining at historic lows of 0.1% and no tweaks to a $895bn asset-buying programme.

Speculation had grown the central bank would signal intentions to use negative rates, hitting the pound earlier this week.

But policdymakers said UK banks would need at least six months to prepare for any such shift. The BoE has told them to begin preparations in case they are introduced, but insists there are no current plans to do so.

WATCH: Deutsche Bank beats earnings estimates, swings to profit

The FTSE 100 (^FTSE), reliant on overseas earnings, dipped 0.1% as the pound made gains against the euro (GBPEUR=X) and pared back losses against the dollar (GBPUSD=X) to trade close to flat.

The FTSE 250 (^FTMC) and the Europe-wide Stoxx (^STOXX) were trading close to flat. Germany’s DAX (^GDAXI) and France’s CAC 40 (^FCHI) was up 0.4%.

The Bank of England downgraded their 2021 growth forecast from 7.25% to 5%, but said GDP would still “recover rapidly towards pre-covid levels” as vaccines allow economic re-opening.

READ MORE: Bank of England cuts forecast for UK economy due to lockdown

“European equity markets traded broadly higher for a fourth day as the corporate earnings backdrop continued to offer support, whilst the Biden administration is pressing ahead with the $1.9tn stimulus package without Republican backing,” said Neil Wilson, chief market analyst at Markets.com.

“Biden wants to act fast and does not want to spend his first 100 days in office horse trading with the GOP over relief plans.”

WATCH: What are negative interest rates?

It came in spite of declines for most Asian stock indices overnight. Short-term interest rates rose in China, raising concerns over an apparent shift to monetary tightening.

The liquidity squeeze by the People’s Bank of China comes despite greater demand for cash ahead of the Lunar New Year holiday, with policymakers thought to be seeking to cool property and stock market growth.

Japan’s Nikkei (^N225) was off 1.1% and the Kospi (^KS11) in South Korea lost 1.4%.

Hong Kong’s Hang Seng Index (^HSI) lost 0.7%, and the Shanghai Composite Index (000001.SS) was down 0.4%.“Following a solid start to the week, the global rally in risk assets showed some dwindling signs in Asia. However, there is still a very positive pro-cyclical vibe under the hood, which coincided with steepening US yield curves as Energy and Bank stocks surged,” said Stephen Innes, chief global market strategist at Axi.

READ MORE: What a new post-Brexit state aid regime means for the UK

There are also concerns over China-US relations. “Weighing on sentiment a touch are hawkish comments from the US Commerce Secretary nominee Gina Raimondo on restricted Chinese companies,” wrote Deutsche Bank analysts in a note.

“She said that she knows of “no reason” why Huawei, ZTE and other Chinese companies shouldn’t remain on a restricted trade list, thus suggesting that the new administration will likely continue with a hard-line stance on China.”

Meanwhile US futures looked set to open higher after weekly unemployment claims dropped more than expected. S&P 500 futures (ES=F) were up 0.2% after a third straight day of gains on Wednesday, ending the last session just 0.7% short of record highs.

Dow Jones futures (YM=F) were up 0.1% shortly before markets opened, while futures on the Nasdaq (NQ=F) rose 0.5%.

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