Earnings Optimism Propels European Markets to Their Highest Month since November 2020

European Markets
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European markets gained on Friday, on track for their first monthly rise in four months, as a slew of positive profits from corporate Europe outweighed worries of a global recession, with the emphasis now shifting to eurozone inflation and GDP data later in the day.

The pan-European STOXX 600 (INDEXSTOXX: SXXP) was up 0.9 percent for the third session in a row, and was on track for its best monthly performance since November 2020.

Bank stocks (INDEXSTOXX: SX7P) rose 1.5 percent, led by British lender NatWest (LON: NWG), which rose 7 percent after upgrading its full-year revenue forecast.

Strong quarterly sales increase at Hermes (EPA: RMS) and L’Oreal (EPA: OR) boosted luxury stocks (OREP.PA). Shares of the Birkin bag company rose 7.2 percent, while those of the cosmetics company rose 3.3 percent.

“At the moment, it seems the market believes everything is wonderful and dandy, but that isn’t the true if you look at the concrete data that’s coming in,” Michael Brown, Caxton’s head of market intelligence, said.

The US economy declined for the second quarter in a row, according to data released on Thursday, fueling recession fears.

Flash readings on eurozone second-quarter GDP and July inflation figures, both scheduled at 9 a.m. GMT, are likely to reveal that economic growth has slowed significantly while inflation has stayed at a record high.

Worries about a recession have reduced bets on central bank policy tightening, with money markets now pricing in a roughly 44 percent likelihood of the European Central Bank (ECB) hiking interest rates by 50 basis points in September, down from a 50 percent chance earlier this week.

“It’s a natural approach since the economic forecast is deteriorating so swiftly and drastically that the ECB will have no alternative but to let off the throttle a little bit,” Brown said.

Among other equities, BNP Paribas (EPA: BNP) of France and BBVA (LON: BVA) of Spain climbed 4.0 percent and 4.4 percent, respectively, after the lenders posted higher-than-expected quarterly earnings.

Capgemini (EPA: CAP) rose 6.3 percent after the French consulting and IT services firm boosted its full-year growth forecast.

Signify (AMS: LIGHT) slumped 7.6 percent after the world’s largest light manufacturer announced its profit margins will fall this year.

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