Investors digest ECB comments, earnings

LONDON — European markets nudged higher on Friday as investors reacted to economic data and corporate earnings, and tried to assess the trajectory of monetary policy.

The pan-European Stoxx 600 fluctuated either side of the flatline throughout the day but was up 0.5% by mid-afternoon, with telecoms falling 1% while travel and leisure stocks jumped 2.3%.

The European Central Bank on Thursday announced a 50 basis point hike to interest rates, its first hike for 11 years, as concerns about runaway inflation outweighed fears of slowing growth induced by Russia’s war in Ukraine.

The ECB also introduced the Transmission Protection Instrument (TPI), a bond protection plan designed to cap borrowing costs across the region and limit fragmentation for indebted countries in southern Europe.

European stocks closed slightly higher Thursday following the decision, and the euro edged up after a choppy day of trading.

Shares in Asia-Pacific were mixed Friday as investors digested a slight rise in Japanese inflation in June, after the Bank of Japan kept interest rates on hold at ultra-low levels on Thursday.

U.S. stock futures were mixed in premarket trade as markets reacted to a fresh batch of corporate earnings and disappointing results from Snap, which sent social media shares plummeting and hit futures on the tech-heavy Nasdaq 100.

On the data front in Europe, flash PMI (purchasing managers’ index) readings on Friday showed that euro zone business activity unexpectedly shrank in July, as a downturn in manufacturing gathered pace and service sector growth slowed, with rising costs forcing consumers to reduce expenditure.

The composite PMI, which encompasses both manufacturing and services, came in at 49.4, below the 50 mark that separates growth in activity from contraction.

The weak data, along with similar readings out of Germany and France individually, sent bond yields across the common currency bloc tumbling.

In the U.K., the composite reading came in at 52.8, slightly below a forecast of 53.0 and down from 53.7 in June.

British consumer confidence remained at a record low in July as soaring inflation and rising interest rates continued to weigh on morale, according to a monthly index from market research firm GfK. The index held at -41 in July, matching June’s 48-year low and remaining below the levels that have previously been seen before recessions.

British retail sales fell 0.1% in June, official figures showed Friday, while May’s 0.5% monthly decline was revised down from 0.5% to 0.8%.

The French finance ministry said Thursday that French economic growth will slow sharply next year as geopolitical risks mount, delaying progress on the public sector budget deficit. The ministry now sees growth in the euro zone’s second-largest economy slowing from 2.5% in 2022 to 1.4% in 2023.

Italy’s political uncertainty shows no sign of abating, with a snap national election now scheduled for September 25 after Prime Minister Mario Draghi resigned in the wake of a collapse of his coalition government.

The Central Bank of Russia shocked the market with 150 basis point interest rate cut, taking the key rate to 8%, as Moscow continues to recalibrate its economy in the face of international sanctions.

Earnings on Friday came from Thales, Danske Bank, Norsk Hydro, Hermes, Sika and Lonza, among others.

In terms of individual share price movement, Uniper shares plunged 21% after the major gas importer agreed a 15 billion euro ($15.2 billion) bailout deal with the German government, which will see the state take a 30% stake in the company.

At the top of the Stoxx 600, Swedish cloud computing firm Sinch gained more than 15%, rebounding from Thursday’s losses after the resignation of its CEO.

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