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European stocks rise amid mixed company earnings

Fawad Razaqzada Fawad Razaqzada 11/02/2021
European stocks rise amid mixed company earnings European stocks rise amid mixed company earnings
European stocks rise amid mixed company earnings Fawad Razaqzada
European stock indices remained on the front-foot at the time of writing after having opened a touch firmer this morning, with most sectors trading in the positive territory. On the week, though, most indices were still flattish, in what has been a low-key week for macro events. China has now started its week-long Spring Festival, which may hurt trading volumes further. That said, we’ve had plenty of company earnings reports (see below), while US jobless claims data is set to be released later on, with a handful of potentially market-moving UK data to follow on Friday.  In FX, the US dollar index was a touch lower, now on its fifth consecutive down day, as the EUR/USD edged higher in a quiet session. Precious metals rebounded slightly, while crude oil was a touch weaker, although holding near its recent multi-month highs.

Europe lags in global risk rally

The ongoing reflation trade has helped to lift some of the global equity markets to new record highs, including in the US and some Asian nations. European indices on the other hand have lagged behind, most notably the UK’s FTSE 100. There is little doubt in my mind that this is due to a rising pound, which continues to find good tailwind support after a no-deal Brexit was avoided and as the UK is currently well ahead of many countries in the race to vaccinate its population. Together, these developments have boosted expectations that the UK economy could potentially recover quicker and stronger once lockdowns end. But the stronger pound has seen the FTSE, whose constituents earn big portions of their profits abroad, underperform. When foreign earnings from these multinational corporations are exchanged for the pound, their profits appear less rosy than they do in dollars or euros. The stronger pound is also negative for UK exports, as it makes UK goods and services appear dearer overseas.


However, with expectations of a strong recovery in UK economy growing, the potential for firmer domestic demand recovery should help UK-listed stocks offset the negative impact of the ongoing exchange rate appreciation. And with UK and global monetary conditions remaining very loose, while fiscal spending is also expansionary, conditions remain favourable for UK stocks. So, the FTSE should, in my view, go higher over time and catch up with the other European indices.

Fed’s printing won’t stop until 2% inflation exceeded

For global markets, investors seem happy to keep buying the dips as they look forward to more US stimulus while expecting that the ongoing central bank bond buying is likely to keep the downside limited for stocks. Indeed, Jerome Powell reminded us on Wednesday that the Fed won't consider slowing QE purchases until 2% inflation is reached – and exceeded. The latest Consumer Price Index (CPI) measure of US inflation missed expectations on Wednesday, staying flat in January. This came as a bit of a surprise to the markets, causing renewed falls for the dollar and bond yields. Meanwhile the ongoing COVID vaccine rollouts will keep hopes that things might be going back to normal soon, alive. Some analysts are expecting pent up demand to cause a strong rebound in global economy once lockdowns end.

European company earnings: more misses than beats

As mentioned, it has been a quiet week for macro data, but the focus has been more on individual names with several big European companies reporting their quarterly results. Unfortunately, there has been quite a few big falls among the top movers. Here are the highlights:
 
  • AstraZeneca saw its shares rise 1.9% after it reported revenue growth and beat analysts' sales estimates. The pharm giant forecast 2021 revenue growth, with the COVID-19 vaccine likely to help the cause.
  • Zurich Insurance reported a 20% fall in 2020 operating profit, causing its shares to drop.
  • Danone shares rose after investment company Artisan Partners demanded corporate governance and strategic changes.
  • Commerzbank fell 7% as the lender said its loss deepened in in Q4, reporting a 2.7-billion-euro loss in the quarter.
  • Credit Agricole shares rose 4%, thanks to a strong dividend.
  • Saab shares fell 7%, after earnings miss.
  • Ted Baker fell 4% as it said trading was hit in the last quarter due the pandemic and warned of higher costs related to Brexit.
  • Royal Mail delivered an 8% rise in its shares, thanks to record parcels orders boosting earnings.
  • Rexel, the French electrical parts supplier, saw its shares soar due to a strong outlook.
 
FTSE trying to break short-term bearish trend

At the time of writing, the FTSE was trying to break its bearish trend line, connecting the recent highs. A clean break above the trend line could potentially lead to renewed technical buying interest:

FTSESource: ThinkMarkets and TradingView.com

From here, the next potential area of trouble is around 6620, which was previously support and where the 50% retracement against the recent high comes into play. Above this, there won’t be many major levels until this year’s earlier high at 6960.

On the downside, the 6515 level is the key short-term support to watch on the daily time frame, below which there are not many daily levels until the recent low at 6300/10 area. On the lower time frames, there are additional supports to watch, such as 6455.
Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Mohamed Zidan
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Mohamed Zidan is a chief market strategist in Dubai and CFA Level III candidate. He reports to London office and has more than eight years of experience focusing on Forex, Commodities, Indices and global economic developments as well as central bank policies and intermarket analysis. worked as FX Analyst, and Strategist in several different organizations and for various departments. He holds a bachelor’s degree from Cairo University in Egypt. Mohamed Zidan is a regular guest on several major TV networks such as; CNBC Arabia, Fran24 Arabic, Alarabiya , Dubai TV, Sama Dubai, Skynews Arabia, Saudi National News, and Egypt National news.

Zidan presents insight to the markets movements, holds open discussions and relays possibilities related to the world’s financial market and economies.

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Victor Golovtchenko has been analysing and trading foreign exchange markets since 2004, and is actively involved in the online media space since 2014. His tenure as a Senior Editor at a major brokerage industry news outlet was followed with a breakthrough into the financial news space with the brand new TradeStar website.

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Fawad Razaqzada
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Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms. He leverages years of market knowledge to provide retail and professional traders worldwide with succinct fundamental & technical analysis. Fawad also offers trading education to help shorten the learning curves of developing traders.
 
His colleagues consider him an expert at reading price action on the charts. This together with his deep understanding of economics and fundamental analysis, and trading experience, puts him in a great position to forecast short term price movements. Fawad covers a wide range of markets, including FX, commodities, stock indices and cryptocurrencies and his comments are regularly quoted by the leading financial publications such as Reuters and Market Watch. In addition to ThinkMarkets, Fawad also provides analysis and premium trade signals on his own website at TradingCandles.com.
 
 

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Carl Capolingua
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Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions. Specialising in Australian and US stock markets in particular, Carl uses a top-down approach to assess the global macro picture before using both technical and fundamental techniques to select stocks. He regularly appears as an expert commentator on a number of media outlets throughout the Asia-Pacific region.
 
 
 

Mohammed Zidan
Mohamed Zidan
He has more than eight years of experience focusing on Forex, Commodities, Indices and global economic developments as well as central bank policies and intermarket analysis.
Victor Golovtchenko
Victor Golovtchenko
Victor Golovtchenko has been trading on the foreign exchange markets since 2004, and is actively involved in the online media space since 2014. His tenure as a Senior Editor follows his role with TradeStar.
Fawad Razaqzada
Fawad Razaqzada
Fawad is an experienced analyst and economist having been involved in the financial markets since 2010, producing market commentary and research for a number of global FX, CFD and Spread Betting brokerage firms.
Carl Capolingua
Carl Capolingua
Carl has over 20 years' experience in financial markets and has held senior analyst roles at a number of financial institutions.

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