European Stocks Stable Near Peaks, BOE Decision Looms

Key Takeaway

• European stocks remain near record highs, with the Stoxx 600 stable amid mixed sector performance and anticipation of the BOE's interest rate decision.
• Banco de Sabadell SA rallies 7.1% after rejecting BBVA's bid, while tech sector faces scrutiny over Arm Holdings' tepid revenue forecast.
• Market buoyed by corporate earnings and economic optimism, despite challenges like geopolitical tensions and inflationary pressures.

Market Performance Amid Earnings Season

European stocks remained close to record highs as investors digested a new wave of corporate earnings and awaited the Bank of England's policy decision. The Stoxx 600 Index saw minimal changes in early trading, maintaining its position after reaching an all-time high the previous day. The energy sector showed notable performance, while the automotive and real estate sectors lagged behind. This mixed sector performance comes as markets in several countries were closed for a holiday, potentially affecting trading volumes and market dynamics.

Banco de Sabadell SA experienced a significant rally, up to 7.1%, following a hostile bid from Banco Bilbao Vizcaya Argentaria SA (BBVA), which saw its shares decline by 5.4%. This move comes shortly after Sabadell's board rejected an initial approach from BBVA. In other corporate news, Telefonica SA's shares dipped despite reporting first-quarter profits in line with expectations and reaffirming its financial guidance for the year. Argenx SE also saw a decline in its share price, even though its Vyvgart sales exceeded analyst estimates for the first quarter.

Central Bank Decisions and Sector Focus

Investor attention is partly focused on the Bank of England's upcoming policy decision, with expectations leaning towards maintaining current interest rates. This decision is highly anticipated, as it could provide insights into future monetary policy directions, especially regarding potential rate cuts from their current 16-year high. The UK's FTSE 100 index reached a new record high, buoyed by commodities' strong performance, while the pound showed weakness ahead of the Bank of England's verdict.

The technology sector, particularly chipmakers, is under scrutiny as Arm Holdings shares fell after providing a tepid revenue forecast for the fiscal year. This has raised concerns about a slowdown in the tech industry's spending on artificial intelligence, reflecting broader market apprehensions about the sector's growth prospects.

Corporate Earnings and Economic Outlook

European stocks have seen a 2.1% increase this month, buoyed by corporate earnings and the anticipation of the European Central Bank beginning to cut rates from June. The resilience of global economic growth and a generally positive earnings season have contributed to bullish market sentiment. However, the market is also navigating through various challenges, including geopolitical tensions and inflationary pressures.

Notably, AstraZeneca announced a worldwide withdrawal of its COVID-19 vaccine due to surplus availability, while Informa's shares rose following an upbeat revenue and profit forecast. These developments highlight the diverse factors influencing market movements and investor sentiment.

Street Views

• Marija Veitmane, State Street Global Markets (Neutral on the market):

  "Stocks are taking 'a bit of a breather' as corporate earnings 'continue to trickle in,'... But those are unlikely to set the market alight either as the big stories are already in."