There was a more positive tone to markets on Thursday. It was a healthier reaction to strong corporate earnings than seen in recent days. Central bankers in Europe signalling lower rates for longer saw bond yields come down. Falling yields were a green light for equity investors.
Facebook (NASDAQ:FB) led the comeback after reporting soaring sales and a whopping $11.9bn in quarterly profits with no apparent impact from the Cambridge Analytica scandal. For Wall Street its profits before privacy! Next up for Big Tech are quarterly results from Microsoft (NASDAQ:MSFT) and Amazon (NASDAQ:AMZN), which report after the close.
Utilities firms were top risers on the FTSE 100 as bond yields came down. Disappointment at the quarterly results from index heavyweights Barclays (LON:BARC) and Royal Dutch Shell (LON:RDSa) capped the progress. Barclays benefitted from higher equity trading revenues but progress was once again hampered by litigation costs, leading to a quarterly loss.
The DAX index bucked the trend of optimism in Europe. Higher fuel costs led to weak guidance from Lufthansa and plans for ‘significant’ job cuts at Deutsche Bank (DE:DBKGn) did not inspire confidence.
There was a similar story in the US as American Airlines lowered its outlook. It is perhaps understandable that Norwegian Air has revealed several approaches from other airlines since BA-owner IAG (LON:ICAG) took a stake to prepare for a possible bid. If oil prices continue to trend higher, so will fuel costs. In that environment, buying earnings growth might be easier than achieving it organically.
The pound gained slightly as MPs debated UK membership of the EU customs union. As has been the case since the UK voted to leave the EU, short-term traders will view whatever most closely resembles the status quo as positive. If the Commons votes to remain in the customs union, even if it is not binding, we could be looking at a much stronger Sterling.
The euro was little changed after the European Central Bank kept policy unchanged. The ECB played its cards close to its chest. According to Mario Draghi, policymakers “Did Not Discuss Monetary Policy Per Se”, which beggars the question what was. Perhaps Eurovision? Underlying it all Eurozone growth has been strong but the economy has softened in the first quarter and inflation remains below target. Hence it’s probably not the time yet to signal when stimulus will be removed, or how fast.