European stocks posted their third straight weekly gain in the busiest period for earnings so far this season, while cooling inflation and BASF SE gains lifted Germany’s DAX to a record high.
(Bloomberg) — European stocks posted their third straight weekly gain in the busiest period for earnings so far this season, while cooling inflation and BASF SE gains lifted Germany’s DAX to a record high.
The Stoxx 600 closed 0.2% lower on the day, with global sentiment muted after the Bank of Japan’s move to loosen its signature yield curve control.
The European benchmark gained 1.2% for the week, its longest weekly winning streak since April.
Chemical stocks outperformed, propelled by BASF as it said it expects customers replenishing low inventories to drive a tentative recovery in chemical output in the second half.
Consumer products and banking shares also gained, while media and mining sectors lagged.
Among individual movers, Standard Chartered Plc climbed after it raised its forecasts for income growth for 2023 and added to its share buyback program as rising interest rates propelled earnings.
British Airways-parent IAG SA rose as it reported better-than-expected profit on a surge in travel demand.
After a sharp rally earlier this year, European stocks are navigating a season of mixed earnings reports and an uncertain economic outlook.
While results overall are set for a weaker showing, a lot of the disappointment appears to be priced in and the level of the negative price reaction skew is lower than the previous five quarters, Morgan Stanley strategists said.
On the data front, a report showed France’s economy grew significantly faster than estimated and inflation eased, providing a positive surprise as rising interest rates stoke recession fears in the 20-nation euro area.
German inflation also slowed more than anticipated in July, providing more evidence of a gradual moderation in euro-zone price pressures.
Still, market strategists said they remain cautious on the outlook for stocks in the second half.
“In an environment where inflation remains uncomfortably high, the labor market is strong and most companies maintain solid balance sheets, we believe that economic conditions will remain tight for longer and probabilities for a recession are high,” said Anthi Tsouvali, multi-asset strategist at State Street Global Markets.
“In such a backdrop, we would prefer defensives to cyclicals and regions that offer quality earnings,” Tsouvali said.
“That’s why we prefer US to European equities and we expect the US to continue to outperform in the second half of the year.”
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–With assistance from Farah Elbahrawy and Michael Msika.
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