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European shares choppy after ECB signals no more rate cuts, UK votes

Published 06/08/2017, 10:17 AM
© Reuters. A man walks past the London Stock Exchange in the City of London
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By Danilo Masoni and Kit Rees

LONDON (Reuters) - European shares dipped on Thursday after the European Central Bank signaled an end to rate cuts and as Britons voted in a general election, though stronger utilities were a bright spot.

The STOXX 600 (STOXX) was down 0.1 percent in choppy trade by 1334 GMT (9:34 a.m. ET), while Britain's blue chip FTSE index (FTSE) was down 0.2 percent.

European equities hit a session low while banking stocks <.ST7P> briefly turned negative after the ECB cut its inflation forecasts for the euro zone and signaled that it would not cut interest rates further.

Euro zone banks (SX7E) also touched a session low and were last up 0.5 percent.

"The biggest surprise has been that the ECB downgraded its inflation forecast and thereby automatically implies ... that it will provide monetary accommodation for quite a substantial time to come," Dr. Frank Engels, head of multi-asset and investment committee at Union Investments, said.

"In essence, it means the low interest rate environment will remain for quite a long time and that will be a headwind to the profitability of banks," Union Investments' Engels added.

The pan-European benchmark has struggled since hitting a 21- month high in May with investors seeking fresh catalysts after a rally fueled by strong earnings and record inflows.

On Thursday the congressional testimony in the U.S. from ex-FBI director James Comey, who was fired by President Donald Trump last month, will also keep investors on the edge.

"Markets are longing for more certainty, which will be needed in order to post the next leg higher. Today and tomorrow certainly have the potential to provide traders with a clearer outlook where the UK, the US and the Euro-zone is concerned," said Markus Huber, a trader at City of London Markets.

In Britain, opinion polls on Wednesday showed that Prime Minister Theresa May was on course to increase her majority in parliament in Thursday's election, helping sterling.

Bank stocks (SX7E) (SX7P) rose for a second day following the swift rescue of Spain's Banco Popular (MC:POP) by bigger rival Santander (MC:SAN), but Italian banks were under pressure on reports they could join the state in the rescue of troubled regional lenders in the Veneto region.

A source familiar with the matter said Rome was putting pressure on heavyweights Intesa SanPaolo (MI:ISP) and UniCredit (MI:CRDI) to take part so that other banks would follow their example. Intesa edged 0.7 percent higher and UniCredit gained 1.2 percent.

The broader euro zone bank index (SX7E) gained 0.5 percent.

"The important thing is to get a solution fast and remove the uncertainty," Stefano Fabiani, fund manager at Zenit said. "Santander wobbled a bit early yesterday but then it went positive. And it’s the same thing here."

Santander in Madrid rose 3.2 percent.

© Reuters. A man walks past the London Stock Exchange in the City of London

Utilities also rose with RWE (DE:RWEG) and E.ON (DE:EONGn) up 2.1 and 3.7 percent respectively, adding to their rally in the previous session after a nuclear energy tax which penalized them was scrapped.

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