Upbeat earnings, banks lift European shares

By Sruthi Shankar and Shreyashi Sanyal

(Reuters) – European stocks rose on Tuesday after a string of upbeat earnings, while banking shares gained as government bond yields hit fresh highs in anticipation of quicker interest rate hikes by global central banks to tackle surging inflation.

The pan-European STOXX 600 index climbed 0.5%, rebounding from a “flash crash” in the previous session caused by a single sell order trade by Citigroup Inc.

Oil & gas jumped 4.1% to lead gains among European sectors, boosted by BP, which rose 5.8%, as a strong operational performance driven by high oil and gas prices helped the British energy company increase share buybacks.

Economically sensitive sectors such as banks and automakers advanced about 2% each, leading gains early on Tuesday as German 10-year bond yields hit 1% for the first time since June 2015. [GVD/EUR]

Overnight, the U.S. 10-year Treasury yield hit 3% for the first time since December 2018 ahead of a Federal Reserve meeting on Wednesday, when policymakers are expected to hike rate by 50 basis points to contain soaring prices. [US/]

European stocks had a rough April, when worries about aggressive monetary policy tightening, China’s COVID lockdown and the Ukraine war stoked concerns about a sharp global economic slowdown.

“The narrative so far this year has very much been inflation and interest rate driven. What the markets are trying to assess now is a slowdown in global growth and what impact that has on monetary policy going forward,” said Dan Boardman-Weston, chief executive officer at BRI Wealth Management.

Data showed euro zone producer prices surged more than expected in March as energy prices more than doubled year-on-year, while unemployment hit a new record low.

Jack Allen-Reynolds, senior Europe economist at Capital Economics said supply problems faced by euro-zone companies have eased a little this year, but remain intense. “This will continue to weigh on production and keep inflation high.”

French bank BNP Paribas jumped 5.2% as it posted a better-than-expected 19% rise in net income as trading boomed and reaffirmed its medium-term profitability targets.

Nearly half of the STOXX 600 companies have reported first-quarter results so far, and 71% of those have topped analysts’ earnings estimates, as per Refinitiv IBES data, with the biggest beats coming from energy and materials sectors.

German chemicals maker Covestro slid 4.9% after it warned COVID-19 lockdowns in China will significantly affect business in the second quarter.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Subhranshu Sahu, Sriraj Kalluvila and Barbara Lewis)