By Callum Keown
European equities recovered from heavy losses on Wednesday, but markets remained cautious ahead of the long-anticipated interest rate cut from the US Federal Reserve later today.
The Stoxx 600 /zigman2/quotes/210599654/delayed XX:SXXP -0.52% nudged higher, while the DAX /zigman2/quotes/210597999/delayed DX:DAX -0.35% , which fell sharply on Tuesday, made gains of 0.3%. The CAC climbed 0.1%.
The FTSE 100 /zigman2/quotes/210598409/delayed UK:UKX -0.51% was dragged down 0.4% as the UK’s biggest mortgage lender Lloyds Bank /zigman2/quotes/204976983/delayed CH:LLOY +1.84% and wealth manager St James’s Place /zigman2/quotes/200849568/delayed UK:STJ -1.68% reported disappointing results.
What’s moving the markets?
Donald Trump’s flurry of Tweets attacking China and concerns over Brexit battered European stocks on Tuesday, sending Asian markets lower overnight. The US President’s tough rhetoric, which threatened “no deal at all”, ensured European markets were mixed on Wednesday as expectations of progress between the U.S. and China remained low.
Strong earnings from European banks, including Credit Suisse /zigman2/quotes/205269278/delayed CH:CSGN -1.86% and France’s largets bank by assets BNP Paribas /zigman2/quotes/203020019/delayed XE:BNP -2.79% , boosted stocks but investors remain cautious ahead of the Fed’s meeting later on Wednesday.
A 25 basis point cut is widely expected but attention will turn to Fed chair Jerome Powell’s outlook, who is scheduled to hold a press conference after the close of European markets.
Spreadex analyst Connor Campbell said: “Though a rate cut appears to be a given at this point, the way the central bank frames its decision could come to dictate trading in the latter half of the week.
Campbell added: “With that in mind, the European indices were pretty muted.”
The slowdown in the eurozone economy added support to expectations that the European Central Bank will ease monetary policy in September.
Inflation in the single-currency bloc cooled to 1.1% in July, well below the ECB’s 2% target, while GDP grew by just 0.2% in the second quarter.
Which stocks are active?
Credit Suisse shares rose 4.7% as second-quarter profit soared 45% to 937 million Swiss francs ($945.6 million), its highest earnings in four years. The Swiss bank comfortably beat expectations and confirmed its 2019 targets.
Air France-KLM /zigman2/quotes/208325626/delayed IT:AF -3.11% shares took off after the airline increased operating profit in the second quarter despite rising fuel prices. The company’s cost-cutting offset a higher tax and fuel bill, sending its stock 7% higher.
British retailer Next /zigman2/quotes/200704121/delayed UK:NXT -1.57% defied the high street gloom as full-price sales, including online sales, rose 4% in the second quarter. Next increased its full-year profit guidance by £10 million ($12.2 million) to £725 million, which the company said is a rise of 0.3% on last year.