Weak Earnings Drag Down European Markets, ECB Holds Rates After 10 Consecutive Hikes

Bridgette Randall
26 Oct, 2023
Frankfurt

European stocks turned lower in cautious trading ahead of interest rate decisions and weak earnings results from several corporations.

The DAX index and the CAC 40 index dropped more than 0.6% after Mercedes-Benz, Unilever, and BNP Paribas earnings disappointed investors.

The FTSE 100 index also struggled and eased more than 0.5% on the weakness in resource stocks and ongoing domestic economic growth worries.

The European Central Bank left its three key lending rates unchanged, as widely expected.

The central bank paused rates after increasing rates ten times in a row since 2022 and lifting the main refinancing rate to a 22-year high of 4.5% and the deposit facility rate to a record high of 4.0%.

Investors are anticipating comments from President Christine Lagarde to gain deeper insights into the rate decision and the inner workings of the economy.

 

Europe Indexes and Yields

The DAX index decreased 1.3% to 14,698.69, the CAC-40 index fell 0.6% to 6,871.53, and the FTSE 100 index eased 0.5% to 7,378.05.

The yield on 10-yetrar German bonds increased to 2.88%, French bonds traded higher to 3.51%, the UK gilts edged up to 4.60%, and Italian bonds inched higher to 4.91%.

The euro hovered near a three-month low at $1.054, the British pound at $1.205, and the U.S. dollar at 89.81 Swiss cents.

Brent crude increased $1.16 to $88.98 a barrel, and the Dutch TTF natural gas edged lower by €0.38 to €50.31 per MWh.

 

Europe Stock Movers

Mercedes-Benz Group AG declined 5.9% to €57.75 after the German luxury automaker forecasted downward pressure on car sales margins after two years of sales gains.

BNP Paribas SA decreased 3.9% to €53.94 after the French bank reported a decline in third-quarter profit on higher expenses.

HelloFresh SE dropped 11.2% to €21.62 after the meal-kit provider reported third-quarter revenue that fell short of some investors' expectations.

Aixtron SE added 0.6% to €28.68 after the chip systems maker reported a slight increase in sales and earnings in the third quarter.

Danone SA increased 2.9% to €56.47 after the yogurt company lifted its full-year outlook.

Carrefour SA jumped 4.4% to €16.31 after the French hypermarket operator reported an increase in third-quarter sales and the company reiterated its full-year outlook.

Sodexo SA advanced 6.5% to €103.70 after the French flight catering and food company said it plans to list its voucher and benefits division, Pluxee, early in 2024.

Unilever plc declined 3% to 3,895.0 pence after the new chief executive officer released a plan to simplify and restructure the business.

WPP Plc declined 2.3% to 675.20 pence after the U.K.-based advertising company trimmed its outlook for the second time in as many quarters.

Standard Chartered Plc dropped 9.9% after the U.K.-based bank reported a sharply lower quarterly profit because of high impairment charges linked to China's property market.

Net interest margin in the quarter advanced to 1.67% from 1.43% a year ago but eased 4 basis points from the previous quarter.

The emerging-markets-focused bank swung to a net loss of $35 million from a profit of $964 million a year ago.

The bank's high exposure to the Chinese property market negatively impacted quarterly performance, as the lender provided about $1.1 billion in loans to real estate developers in the last two years.

Standard Chartered said provision for credit losses increased 37% from a year ago to $294 million, including $186 million related to its commercial property sector in China.

The bank also lowered the carrying value of its investment in China Bohai Bank by $697 million, reflecting weak macroeconomic conditions and the bank's cautious outlook.

Despite the current weakness, the bank reiterated its annual outlook in a statement released to investors.

The company guided a full-year 2023 net interest margin of 1.70 basis points, income to increase in the 12%–14% range in constant currency, and a return on tangible equity of 10%.

“We continue to expect 2024 income growth to be in the 8% to 10% range at constant currency, and we remain confident of achieving a greater than 11% return on tangible equity,” said group chief financial officer Andy Halford.