Earnings Optimism Drives European Indexes Higher Ahead of Rate Decisions

Bridgette Randall
26 Jan, 2023
Frankfurt

European indexes advanced following upbeat earnings updates and hopes of softer rate hike in the U.S. supported the positive mood. 

STMicroelectronics, Thales, Worldline, Sartorius, Infineon Technologies and Zalando advanced after the release of earnings updates. 

Pernod Ricard and Essilor Luxottica fell on earnings worries.  

Investors also digested the stronger-than-expected fourth quarter GDP increase of 2.6% and durable goods orders also suggested a strong demand from consumers and businesses. 

The stronger U.S. economy bodes well for the exports from the Euro Area but also rekindled fears of aggressive rate hike by the Federal Reserve, negatively impacting the euro. 

The U.S. Federal Reserve is set to announce its rate decision after a two-day meeting on February 1 and the European Central Bank is scheduled for its rate decision on February 2. 

 

UK Automobile Production plunged to 6-decade Low 

Passenger car production in the UK dropped the most in 2022 after manufacturers struggled with chip supply shortages. 

December total production declined 17.9% after domestic demand fell 25.0% and exports dropped 15.4%. 

For 2022, total production dropped 9.8% to  775,014 units from 859,575 in the previous year, which was the lowest level since 1956. 

The data were released by the Society of Motor Manufacturers and Traders. 

Production for domestic demand increased 9.4% but exports fell 14.0%. 

 

Norway's 2022 Jobless Rate Fell 

Norway's jobless rate increased to 3.4% in December from 3.4% in September and for 2022 fell to 3.2% from 4.4% a year ago.  

December data is an average of  three months between November and January and September data is an average between August and November. 

The number of unemployed persons increased to 101,000 in December from 97,000 in September, Statistics Norway reported today. 

The number of employed people increased to 2.852 million in December from 2.848 million in September.

 

Europe Indexes closed Higher 

The DAX index increased 0.34% to 15,132.95, the CAC-40 index rose 0.7% to 7,095.99 and the FTSE 100 index inched up 0.2% to 7,761.11. 

 

Euro Swings Higher 

The euro closed at a fresh 9-month high and currency investors bet that the smaller rate hikes in the U.S. will keep the dollar in the downward trend at least for the next four weeks. 

The euro traded at $1.0889, the British pound edged up to $1235 and the Swiss franc advanced to 91.94 U.S. cents. 

 

Energy Prices Trade Stable 

Crude oil lacked direction but followed a slight rebound in energy prices in New York after fourth quarter GDP rose more than expected. 

Natural gas prices traded near a 16-month low amid elevated storage and warm weather conditions in the region for third week in a row. 

Brent crude oil rose 6 cents to $86.75 a barrel and the Dutch TTF natural gas futures increased a fraction to 56.71 per MWh. 

 

European Government Bond Yields Trend Lower 

European bond yield traded in a tight range and investors braced for an aggressive rate hike in the Euro Area and hoped for a smaller rate increase by the Federal Reserve next week. 

The yield on 10-year German Bunds traded at 2.18%, French bonds at 2.64%, UK Gilts at 3.45% and Italian bonds at 4.14%. 

 

Europe Stock Movers 

STMicroelectronics soared 8.2% to €42.68 after the advanced semiconductor equipment maker reported better-than-expected earnings. 

Fourth quarter revenue increased 24.4% to $4.4 billion and net income soared 66.4% to $1.25 billion from $750 million a year ago. 

Diluted earnings per share rose to $1.32 from 82 cents a year ago. 

The company guided first quarter revenue to increase 18.5% from a year ago and decline 5.1% from the previous quarter to $4.2 billion. 

The equipment maker estimated a gross margin of 48.0% and capital expenditure in 2023 of $4.0 billion. 

Sartorius AG increased 3.6% to €354.0 after the biotech holding company reported stronger-than-expected financial results. 

Fiscal 2022 revenue increased 21% or 15% in constant currencies to €4.1 billion. 

The company benefited from orders related to Covid-19 and underlying operating earnings rose 20% to €1.4 billion and operating margin declined to 33.8% from 34.1% in the prior year. 

The company guided 2023 consolidated revenue to increase in the " low single-digit percentage range."

SAP SE declined 0.9% to close at €105.0 after the software company reported a sharp decline in profit. 

Revenue in the December quarter increased 6% to €8.4 billion from €7.98 billion a year ago. 

Net income plunged 77% to €332 million from €1.4 billion and diluted earnings per share dropped 66% to 47 euro cents from €1.23 a year ago. 

The company also confirmed that it is looking to sell its stake in Qualtrics. 

The company also plans to reduce its current workforce of 110,000 by 2.5% or about 3,000 and take a restructuring charge between  €250 million and €300 million.