Europe Markets: European stocks cling to small gains ahead of ECB decision

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European stocks notched small gains Thursday, showing signs of recovery from its deepest loss in weeks, as a fresh batch of earnings reports rolled in.

Among those results, Deutsche Bank AG posted a steep slide in profit and signaled it will make radical changes to its underperforming investment bank.

Later, the European Central Bank is scheduled to release its latest update on monetary policy, and investors will watch for any comments from the ECB’s president, Mario Draghi, on eurozone economic growth.

How markets are moving

Following a flat open, the Stoxx Europe 600 index SXXP, +0.14%  rose 0.2% to 380.95. The utility and telecom groups were the best performing, and the tech sector was the sole decliner. The pan-European benchmark on Wednesday fell 0.8%, the biggest loss since March 23, according to FactSet data.

Germany’s DAX 30 index DAX, -0.15% turned lower, losing 0.1% to 12,406.03, and France’s CAC 40 index PX1, +0.33%  gained 0.3% to 5,428.49.

Spain’s IBEX 35 IBEX, +0.42% picked up 0.3% to 9,890.40, but the U.K.’s FTSE 100 UKX, -0.06%  was off 0.1% at 7,375.83, after breaking a six-session winning streak on Wednesday.

The euro EURUSD, +0.1234%  was buying $1.2167, slightly higher than $1.2161 late Wednesday in New York.

The yield on Germany’s 10-year bund TMBMKDE-10Y, -3.45% fell 2 basis points to 0.62%, according to Tradeweb data, as prices rose.

Check out: Why the premium for German bonds over Treasurys is the widest in 30 years

What’s driving the market

Investors were sifting through a stream of earnings reports, from big names such as Deutsche Bank, Barclays PLC and Royal Dutch Shell PLC, with a mixed bag of results.

Putting a dampener on spirits somewhat was the persistent strength of U.S. Treasury 10-year bond yields TMUBMUSD10Y, -0.43%  , which were holding above the psychologically important 3% level. Rising bond yields can weigh on stocks as bonds start to offer better returns than equities and raise borrowing costs.

Investors are also treading carefully ahead of the ECB monetary policy announcement and press conference with Draghi later in the session. No fireworks are expected from the central bank, but there is the potential for some light to be shed on policy makers’ thinking.

See: 4 outcomes for the ECB meeting, in 1 handy chart

And read: Expect a careful, dovish Mario Draghi

Stocks in focus

Deutsche Bank shares DBK, +0.18% DB, -1.22%  were down 2.3% after the embattled lender said first-quarter net profit tumbled 79% to €120 million, and said it will shrink its U.S. investment bank. The report is the first since it ousted Chief Executive John Cryan.

Philips Lighting NV shares LIGHT, -10.72%   tumbled 10% as the company said first-quarter net profit fell 67% while sales fell on the poor performance of its home division.

Volkswagen AG VOW3, +2.62% VLKAY, -1.38%  picked up 3.4%, with the German auto maker confirming its fiscal-year guidance. First-quarter revenue rose 3.6% and after-tax profit fell slightly to €3.3 billion ($4 billion).

Royal Dutch Shell PLC RDSB, -2.36% RDS.B, +0.07%  was down 1.7% even as the oil producer reported its highest quarterly profit since 2013. First-quarter profit on a current cost-of-supplies basis — a number similar to the net income that U.S. oil companies report — rose 69% to $5.7 billion.

Barclays PLC BARC, -0.54% BCS, -0.83%  shares turned higher to trade up by 0.7%. The U.K.-based lender said litigation and conduct charges dragged it to a first-quarter loss of £764 million.

ECB call ahead

Traders will shift focus to the ECB announcement later for clues on when the central bank will wind down its massive bond-buying program and start to raise interest rates, though little or no action is expected from the April meeting.

The ECB in March surprised markets by signaling it’s on track to end its stimulus program before year’s end. But since then, economic data have pointed to a slowdown in the eurozone economy. That has led investors to dial back expectations for the start of rate hikes in the middle of 2019.

As well, core inflation at 1% is still well below the ECB’s target of near, but just below, 2%. The euro has recently fallen below $1.22, down from above $1.24 during the March 8 meeting.

The ECB’s policy statement is due at 12:45 p.m. London time, or 7:45 a.m. Eastern Time. Draghi will hold a news conference at 1:30 p.m. London time, or 8:30 a.m. Eastern.

See: 4 outcomes for the ECB meeting, in 1 handy chart

And read: Expect a careful, dovish Mario Draghi

What strategists are saying

“We know that the ECB is not ready to raise interest rates and they certainly don’t want to see EUR/USD back above 1.24 because that would offset the improvements in prices. Yet they also want to end QE purchases this year — so Mario Draghi has quite the balancing act to do on Thursday,” said Kathy Lien, managing director of FX strategy at BK Asset Management, in a late Wednesday note.

“We think Draghi will remain cautious and emphasize patience, which in an environment of a rising U.S. dollar could send EUR/USD down to 1.21 and eventually 1.20. However, if the tone of his press conference is a bit more optimistic, EUR/USD could bounce back up to 1.23,” Lien said.

Economic data

Market-research group GfK’s forward-looking consumer confidence index is set to drop to 10.8 points in May from 10.9 points in April, it said Thursday, as geopolitical issues and growing protectionism are souring German consumers’ mood.