ECB meeting, Russia-Ukraine on the agenda

LONDON – European stocks were cautious on Thursday morning as investors awaited the European Central Bank’s latest policy decision and tracked developments in Ukraine.

The pan-European Stoxx 600 nudged 0.2% higher in early trade, with travel and leisure stocks gaining 1% while telecoms dropped 0.8%.

In terms of individual share price movement, Hungary’s Wizz Air climbed 6.8% after its post-close trading statement. Atlantia gained 5% after the Benetton family and US investment firm Blackstone tabled an offer for the Italian road and rail firm.

At the bottom of the European blue chip index, Swedish telecoms company Ericsson dropped 6% after warning that it will likely be fined by US regulators for its handling of a bribery investigation in Iraq. The company also reported a fall in quarterly earnings following its exit from Russia.

“The euro zone faces the same inflationary challenges as the UK and USA, with rates trailing far behind the accelerating rate of inflation, but economies far from ready to handle significant anti-inflationary rate hikes.”

Steve Clayton

fund manager, Hargreaves Lansdown

The ECB will announce its latest monetary policy decision at 12:45 pm London time. Markets are not expecting any change in interest rates just yet, but widely expect the Governing Council to adopt a more hawkish tone and lay the foundations for policy tightening over the summer, with euro zone inflation running at a record high.

“The euro zone faces the same inflationary challenges as the UK and USA, with rates trailing far behind the accelerating rate of inflation, but economies far from ready to handle significant anti-inflationary rate hikes,” said Steve Clayton, fund manager at British asset manager Hargreaves Lansdown.

Investors in Europe are also monitoring the war in Ukraine. A Russian missile cruiser was attacked and damaged by Ukrainian forces in the Black Sea early on Thursday, forcing the entire crew to be evacuated.

US President Joe Biden announced another $ 800 million in weaponry for Ukraine on Wednesday, following an hour-long phone call with the country’s president, Volodymyr Zelenskyy.

In other news, a sixth Covid-19 vaccine has been approved in the UK, after the country’s health regulator gave the green light to French company Valneva’s shot.

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Shares in Asia-Pacific were mostly higher on Thursday as investors reacted to monetary policy tightening announcements by central banks in South Korea and Singapore.

Stateside, stock futures were moderately higher in early premarket trade ahead of earnings announcements from the largest US banks, including Wells Fargo, Goldman Sachs, Morgan Stanley and Citigroup.

JPMorgan Chase said Wednesday that first-quarter profits fell sharply from a year earlier, driven by increased costs for bad loans and market upheaval caused by the Ukraine war.

Carolina Moura-Alves, head of asset allocation at Quintet Private Bank, told CNBC on Thursday that banks would not benefit as much from the impending rate hiking cycle as they had in previous ones. By contrast, she suggested that tech stocks could offer an upside surprise.

“There are a few challenges and the result JPMorgan put forward yesterday, I really talk about late cycle dynamics which perhaps will not be as favorable for banks as previous hiking cycles in history,” Moura-Alves said.

“Tech suffered from the repricing of the yield curve from the higher discount rate because it is a longer duration sector, compared to other sectors in equity markets, and as we now approach a situation where the market has a good handle on how the Fed will go going forward, repricing has happened and perhaps there is even an opportunity for some dovish surprises down the line. “

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