European stocks slip as Fed caution offsets upbeat bank earnings

European shares gave up opening gains on Wednesday, as caution crept in ahead of the US Federal Reserve’s policy decision, but strong results from Deutsche Bank and Lloyds Banking Group boosted earnings optimism.

The pan-European STOXX 600 index slipped 0.3 per cent, with travel and leisure stocks easing from all-time highs, and miners retreating after a recent rally.

The region’s banking sector was up 0.3% and insurers rose 0.6 per ent.

Deutsche Bank jumped 6.5 per cent to the top of STOXX 600, as strength at its investment bank helped the German bank post a better-than-expected first-quarter net profit.

Shares dip as optimism about economic recovery dented

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Topping London’s FTSE 100, Lloyds Banking Group rose 3.3 per cent after reporting a better-than-expected profit.

Sweden’s SEB and Spain’s Santander inched lower after their quarterly results.

“At a market level, Europe has performed strongly year-to-date and it’s clear that there has been an anticipation that the recovery will be quite sharp and strong,” said Tom Dorner, investment director for European equities at Aberdeen Standard Investments. “You’re still seeing a rotation in the market in favour of the more cyclical names like banks and autos.”

Investors, however, stayed away from making big bets ahead of the US central bank’s policy announcement due later today. Policymakers are widely expected to reaffirm their stance to keep monetary policy loose until enough economic progress has been made.

Earnings at European companies in the first quarter of 2021 are expected to surge 71.3 per cent from a year earlier, according to Refinitiv IBES data, up from last week’s forecast of a 61.2 per cent jump.

The world’s biggest advertising company WPP rose 2.9 per cent on returning to underlying growth in the first quarter, as clients launched new products and brands.

German food delivery company Delivery Hero jumped 5.9 per ent, as it expects revenues to more than double in 2021.

Among decliners, Lysol maker Reckitt Benckiser Group fell 1.4 per cent, even as the company backed its full-year outlook.

British supermarket chain Sainsbury’s dropped 2.5 per cent, after it reported a 39 per cent fall in annual underlying profit.

- Reuters