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Earnings boost European markets ahead of Fed decision

·5-min read
WASHINGTON, DC - MARCH 03: Federal Reserve Chair Jerome H. Powell announces a half percentage point interest rate cut during a speech on March 3, 2020 in Washington, DC. (Photo by Mark Makela/Getty Images)
Federal Reserve Chair Jerome Powell. Photo: Mark Makela/Getty Images

European markets were in the green on Wednesday, lifted by earnings as investors await the latest interest rate decision from the US Federal Reserve. 

In London, the FTSE 100 (^FTSE) closed 0.3%, moving back towards the 7,000 mark. France’s CAC (^FCHI) was up 0.5% and Germany’s DAX (^GDAXI) advanced 0.3%.

Profits at Lloyds Bank soared as Britain's economy reopens, the strong performance has led to the bank upgrading some of its outlook. 

The UK's biggest high-street bank said pre-tax profits reached £1.9bn for the first three months of the year, following a boom in mortgages and a release of £459m in provisions that had been set aside for soured loans.

House builder Persimmon (PSN.L) announced house sales so far in 2021 are up 11%, compared to last year and the UK's mini-housing boom continues. 

The FTSE 100 firms said forward sales for the period from 1 January to April are worth £3bn, up 23% compared to the previous year, and £2.7bn in 2019. 

Advertising giant WPP (WPP.L) said sales at the London-based firm rebounded as global brands started spending on marketing again. It said like-for-like revenues were up over 3% to £2.33bn during the first quarter compared to a year earlier. 

"WPP shareholders had been braced for another decline in sales during the quarter but streams of revenue from existing business rose 3.1%. It marks a milestone in the turnaround for the world’s largest marketing business after the pain of the pandemic," said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. 

Shares in Germany's Deutsche Bank rose as much as 6% after it raised its outlook after posting its best quarter since 2014, unveiling a pre-tax profit of €1.5bn ($1.8bn, £1.3bn) in the first three months of 2021. 

However, British supermarket Sainsbury's (SBRY.L) counted the costs of the COVID pandemic, posting a £260m pre-tax loss as strong food sales during the pandemic were outweighed by extra costs and a decision to forgo business rates relief.

READ MORE: Mortgage boom helps Lloyds Bank beat forecasts with £1.9bn profit

Across the Atlantic, major US indices were mixed with the Federal Reserve back in the fray.

The Dow Jones (^DJI) was down 0.3% ahead of the Fed's decision, Wall Street’s blue-chip S&P 500 (^GSPC) rose 0.1%, and the tech-heavy Nasdaq (^IXIC) edged 0.1% lower.

The Federal Open Market Committee (FOMC) kicked off its two-day policy meeting on Tuesday and chair Jerome Powell is expected to make concluding remarks later on Wednesday that could indicate whether the US central bank will tweak its interest rates outlook.

Investors will keep a close tab on whether it will stick with its dovish stance as optimism in America’s economy grows, and any hint of Powell paring back the bond buying programme.

Economic indicators across the board have shown signs of improvement, most notably the US’ vaccination push, which reduced mortality rates.

This comes against a backdrop of falling jobless claims, rising retail sales, surging purchasing managers’ index (PMI) data and a spike in non-farm payrolls.

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The yield on the benchmark Treasury note, which influences global borrowing costs, hovered near the highest levels in since the last FOMC meeting, rising to1.64% on Tuesday, after strong demand in a $62bn (£45bn) sale of seven-year notes.

"We also saw US bonds sell off, helping to push US 10-year yields back above the 1.6% level for the first time in a week, a move that appeared to be triggered by US consumer confidence in April which smashed expectations, jumping strongly to its highest level in over a year, at 121.70. At the beginning of the year this indicator was at 88.9 reflecting wider concern over rising infection rates and the twilight of the Trump presidency, chief market analyst at CMC Markets, Michael Hewson said. 

But, rising coronavirus infections could put a damper on global equities as hopes of an economic rebound wither.

The MSCI All-Country World Index – the broadest measure of global equity prices – shed 0.1%. The global index increased 9% so far in 2021, underpinned by expectations that inoculation rates will speed up the reopening of economies and bolster company profits.

India's healthcare system continues to struggle with the second coronavirus wave, recording over 200,000 COVID deaths on Wednesday and a record 360,960 new cases, amid shortages of oxygen, medical supplies and hospital staff record new cases of the virus.

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Asian stocks mainly rose overnight, shrugging off any jitters ahead of the Fed decision. Hong Kong’s Hang Seng (^HSI) rose 0.3% and the Shanghai Composite (000001.SS) was 0.4% higher. Japan’s Nikkei (^N225) closed up 0.2%.

The Bank of Japan (BoJ) warned it doesn’t expect inflation to reach the central bank’s 2% target until 2024 as the COVID crisis intensifies. The BoJ also said it would be willing to extend its pandemic relief program beyond September.

Oil prices rebounded to a week high on optimism of the Organisation of the Petroleum Exporting Countries and its partners (OPEC+) meeting to discuss output policy offsetting concern that India’s coronavirus crisis could dent a recovery in fuel demand.

The OPEC+ set out planned production increases through to May at its last meeting in March. Brent futures (BZ=F) was up over 2% to $67.80 and Crude oil (CL=F) rose nearly 3% to $64.29 on Wednesday.

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