European stocks steady as focus turns to ECB decision, earnings 

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European stocks were little changed as investors focused on the corporate earnings season as well as the European Central Bank’s meeting for cues on the path of monetary policy.

The Stoxx Europe 600 Index was up less than 0.1% by 9:27 a.m. in London, and was set to end the holiday-shortened week slightly lower. Travel and leisure shares were the biggest gainers as Wizz Air Holdings Plc jumped on a narrower-than-expected loss, while consumer shares outperformed following better-than-expected sales at Hermes International. Technology shares got a boost as Treasury yields retreated.

The benchmark equity gauge has been under pressure this week as the first-quarter earnings season gets underway amid concerns around high inflation and supply chain disruptions from the war in Ukraine crimping profit margins. All eyes are now on the ECB’s policy meeting today, where the central bank is expected to maintain its speedier withdrawal of stimulus to quell record inflation and will probably hold off from major decisions.

“The ECB doesn’t appear to have the luxury of doing nothing, yet this is what we can probably expect when President Christine Lagarde holds her press conference later today,” said Michael Hewson, chief market analyst at CMC Markets UK. “At some point, the ECB will have to bite the bullet and set out a timeline for a rate hike.”

Regionally, corporate earnings are widely expected to beat analysts’ estimates again, although margin pressures are likely to hurt growth in the coming quarters, according to Morgan Stanley strategists. With full-year profit estimates looking increasingly elevated, strategists led by Ross MacDonald “expect downgrades to accelerate over the coming months as margins are reset lower.”

Martin Moeller, co-head of Swiss and global portfolio management at Union Bancaire Privee, also expects consumer demand to start slowing amid surging prices. “One has to keep in mind that we have seen elevated demand over the past 18 months or so, supported by all sorts of subsidies that they have been getting. But this is a support to purchasing power that would otherwise have been lost out, rather than additional fuel like we saw last year,” he said on Bloomberg TV.

Among individual stocks, Ericsson AB slumped as much as 9.2% after indicating it faces new fines related to its corruption scandal in Iraq and associated breach notices of its deferred prosecution agreement by the U.S. Department of Justice. UPM-Kymmene Oyj also tumbled as it said it had not been able to reach new collective labor agreements with the Paperworkers’ Union.

Source: Bloomberg Quint

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