Tuesday, February 27

European shares boosted by strong earnings, reports of M&A

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European shares closed higher for a third straight session on Wednesday as strong fourth-quarter earnings and deal-making possibilities outweighed concerns over interest rate hikes ahead of key central bank decisions due on Thursday.

The pan-European STOXX 600 rose 0.5%.

French IT consultancy group Atos jumped more than 8%, and was the top performer on the index after Reuters reported tech firm Thales was considering a bid for Atos’s cybersecurity arm.

Thales shares dropped 3%.

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Strong earnings continued to pour in. Swedish industrial technology group Hexagon gained 4.5%, after beating market expectations with record quarterly earnings.

German chip supplier Siltronic posted a 17% jump in quarterly earnings. But the stock fell 1.1% after a sale to Taiwan’s GlobalWafers collapsed.

Focus now turns to upcoming European and British central bank meetings on Thursday, as rising inflation pushed forward expectations of interest rate hikes.

“The European Central Bank’s take on more persistent inflation will be crucial tomorrow,” Commerzbank rates strategists Rainer Guntermann and Hauke ​​Siemssen said in a note.

“The ECB should find it increasingly hard to justify its ‘look-through’ approach… with the Fed poised for lift-off next month and the Bank of England hiking further tomorrow – the risk for an accelerated ECB exit is on the rise,” Guntermann and Siemssen added.

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Financial stocks rose 1.1%, and have benefited in recent weeks from the prospect of a higher interest rate environment. European banks hit their highest level since September 2018.

The STOXX 600 this week has so far retraced more than half of January’s steep 4% losses, as strong fourth-quarter earnings counter some monetary tightening jitters, despite fears of more persistent inflation.

Fourth-quarter profits for companies listed on the STOXX 600 are expected to rise 55% to 114.3 billion euros ($128.9 billion) from a year earlier – a jump from the previous estimate of 51% a week ago, Refinitiv data showed

Among other stocks, Novo Nordisk rose 1% despite missing expectations for fourth-quarter operating profit, as the Danish drug developer rejected allegations it had engaged in maneuvers to hike the price of insulin in the United States.

Swedbank dropped 5.3% after posting a slightly weaker-than-expected operating profit due to weaker results from fixed income trading.

Switzerland’s third-largest listed bank Julius Baer was the worst performer on the STOXX 600, down 5.7% as analysts flagged a miss on costs after the firm’s earnings release.

(Reporting by Anisha Sircar in Bengaluru; Editing by Subhranshu Sahu, Rashmi Aich and Chris Reese)