European stocks up slightly as US earnings offset ECB decision

London — European stocks staged a tentative recovery on Friday as solid earnings at several US companies helped investors overcome the disappointment of the European Central Bank’s (ECB) failure to deliver immediate policy easing.

The pan-European stock benchmark index added 0.2%, and London’s FTSE 100 recovered, helped by Vodafone plans to create a separate European tower company, and education firm Pearson’s gains from an upbeat trading update.

Decent US earnings overnight from Google’s owner Alphabet, Intel and Starbucks helped offset weaker Amazon numbers.

“A stream of earnings from the US has shown that people have to pay attention to the corporate cycle as well as the interest rate cycle, and focus is also shifting to the US’s latest GDP numbers this afternoon, which may go some way to influencing what the US Federal Reserve decides to do,” said Andrew Milligan, head of global strategy at Aberdeen Standard Investments.

On Thursday, ECB president Mario Draghi all but pledged to ease policy further and even hinted at a re-interpretation of the ECB’s inflation target. But many investors had hoped for an immediate reduction of interest rates.

Helping offset the disappointment, shares of Vivendi rose 4% after stellar first-half results at its Universal Music Group raised the stakes for the sale of the French media giant’s most-prized asset.

Vodafone jumped 7.6% on plans to move its mobile mast operations in 10 European markets into a new company that it potentially could list.

In Asia, uncertainties over whether Washington and Beijing will be able to settle gaping differences over trade, technology and even geopolitical ambitions, kept many investors on guard. Negotiators from the two countries will meet in Shanghai next week. MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.6%.

A rally in global bonds ran out of steam after Draghi cautioned about pulling the trigger too quickly on policy easing. Still, the euro’s overnight index swaps are pricing in a rate cut of more than 10 basis points in September, to -0.5%.

“An interest-rate cut of 10 basis points in September looks like a done deal now,” said Hideki Kishida, fixed income strategist at Nomura Securities.

Eurozone government bond yields began to reverse some of the rises seen after the ECB meeting. German 10-year bond yields were two basis points lower at -0.376%, heading back down towards the record low of -0.422%, recorded on Thursday. Other 10-year yields in the eurozone were also about two basis points lower.

Investors expect the US Fed to cut interest rates by 0.25 percentage points at its policy meeting ending on July 31 to protect the economy from potential damage from the US-China trade war.

An advance reading of US GDP, due at 12.30pm GMT, is expected to show the economy grew 1.8% in April-June, the slowest growth in more than two years. The dollar held near two-month highs and is set for its second consecutive weekly rise as investors waited for the GDP numbers.

The euro traded at $1.1136, a mild recovery from a two-month low of $1.1102 hit after the ECB decision on Thursday but down 0.1% on the day. For the week, the euro is down 0.7%.

Sterling edged down to $1.2428, and was on course for a 0.6% weekly loss. Cable has stabilised since Boris Johnson became Britain’s new prime minister, but uncertainty remains about Britain’s negotiations to leave the EU.

Reuters