German and U.K. stocks led advances in European equity trade Friday, amid weakness in the euro and the pound against the dollar. For the week, the pan-Europe benchmark posted a gain amid a raft of corporate quarterly results.
How markets are moving
Germany’s DAX 30 index (XEX:DX:DAX) rose 0.6% to close at 12,580.87, while the U.K.’s FTSE 100 (FTSE:UK:UKX) added 1.1% to 7,502.21.
France’s CAC 40 index (PAR:FR:PX1) tacked on 0.5% to reach 5,483.19.
The Stoxx Europe 600 index (STOXX:XX:SXXP) gained 0.2% to 384.65, rising 0.7% for the week. That marked a fifth straight winning week.
The euro (XTUP:EURUSD) dropped to $1.2082, from $1.2104 late Thursday in New York. The euro fell below $1.22 on Thursday after the European Central Bank held benchmark interest rates steady as expected.
The pound (XTUP:GBPUSD) fell to a more than seven-week low at $1.3786 after a disappointing reading on U.K. economic growth, down from $1.3915 late Thursday in New York.
What’s driving markets
German and U.K. equities marched higher as the euro and the pound fell. Their stock benchmarks are heavily weighted with exporters and multinational companies, and currency weakness can bolster earnings and revenue for those companies.
The pound (XTUP:GBPUSD) on Friday dropped to its lowest since early March after a preliminary reading of U.K. first-quarter economic growth significantly undershot expectations.
The euro extended losses from Thursday, with analysts saying remarks by ECB chief Mario Draghi suggested the central bank is concerned about slowing in the eurozone economy, even as he stressed a solid, broad-based expansion in the region.
French first-quarter GDP figures released Friday highlighted investor concerns about the health of the eurozone as growth in Europe’s second-largest economy slowed.
Draghi also offered little in the way of hints about ending its bond-buying program in September, as expected, and when it expects to begin to raise interest rates.
Meanwhile, investors world-wide were also watching a thaw in tensions between North and South Korea. North Korea’s leader Kim Jong Un crossed the military demarcation line to meet South Korea’s President Moon Jae-in, reportedly discussed denuclearizing the Korean Peninsula during a historic meeting on Friday.
British gross domestic product marked its slowest rate of growth since 2012, with a reading of 0.1%, compared with expectations of 0.3% and with a rate of 0.4% in the fourth quarter of 2017.
French growth slowed in the first quarter, to a rate of 0.3%, raising questions over the long-term strength of the eurozone’s recovery.
Also from France, inflation steadied at a rate of 1.6% in April, said statistics agency Insee, as strong price rises in energy and food offset a slowdown in services prices and a decline in manufactured goods prices.
What are strategists saying?
“Before 1Q GDP today we penciled in Bank of England (BoE) rate hikes in May this year and February next year. Today’s GDP release was the final nail in the coffin for that call. We now pencil in a 25bp rate hikes in November 2018 and one in May 2019,” said economists at Bank of America in a note.
“We have long argued that rates hikes were unnecessary or at the least not warranted by the data flow, and that would keep the BoE from hiking more than once a year. We remain comfortable being in the ‘one hike a year with chance of delay’ camp," they added.
Stocks in focus
Electrolux AB shares (OME:SE:ELUX.B) sank 11% as the household appliance producer’s first-quarter net profit fell 46%, missing forecasts. The company booked hefty restructuring charges in its North American appliances business and felt pressure from raw-material costs and currency headwinds.
RBS (LON:UK:RBS) (NYS:RBS) fell 1.5%, even as the U.K.- majority owned lender posted a threefold rise in first-quarter net profit to £792 million.
“RBS shares are in the red after investors continue to fret about the looming fine from the U.S. Department of Justice,” said David Madden, market analyst at CMC Markets, in a note.”RBS won’t be able to restart paying a dividend until after the DOJ fine has been paid, and until then the stock is likely to be held back.”
Banco Bilbao Vizcaya Argentaria SA (MCE:ES:BBVA) , or BBVA, rose 2.2% after the Spanish lender posted a roughly 12% rise in first-quarter net profit to €1.34 billion euros ($1.63 billion).