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Jan 20 (Reuters) – European shares closed higher on Friday but marked weekly losses as investors took a cautious view of the earnings season and the upcoming central bank decisions, although China’s reopening from COVID-19 lockdowns offered some relief.
However, the benchmark STOXX 600 posted weekly losses of 0.1% despite hitting a nine-month high earlier in the week, weighed by disappointing earnings reports, weak U.S. economic data and hawkish comments from central bankers.
“We’ve seen this robust value in European stocks, largely underpinned by three factors: better-than-expected economic outlook given the milder winter conditions in Europe, China reopening and signs of peaking inflation,” said Laura Cooper, a senior investment strategist at BlackRock.
“But if you take a step back, from a policymaker’s perspective, they are still in a position to continue to raise rates as inflation remains uncomfortably high. We still remain cautious on European equities and it is about taking a selective approach.”
Investors will closely monitor further commentary from Christine Lagarde after the ECB President and fellow policymaker Klaas Knot on Thursday said investors were underestimating the central bank’s determination to bring inflation back to its 2% target.
The Federal Reserve is widely expected to hike interest rates by 25 basis points at its policy meeting in February, while the ECB is seen hiking by 50 basis points.
China said the worst was over in its battle against COVID-19, ahead of what is expected to be one of the busiest days of travel in years on Friday – a mass movement of people that has fed fears of a further surge in infections.
“Europe has more exposure to China reopening and luxury is a big part of the European market,” said Jamie Mills O’Brien, investment manager at Abrdn. “Some of the big players are pure China reopening bets.”
In earnings-driven moves, Denmark’s Orsted (ORSTED.CO), the world’s No. 1 offshore wind farm developer, tumbled 8.7% after announcing a writedown on a large U.S. offshore wind project and an earnings forecast for 2023 that fell short of analyst estimates.
Meanwhile, Sandvik (SAND.ST) gained 4.8% following better-than-expected fourth-quarter earnings.
Reporting by Ankika Biswas, Bansari Mayur Kamdar and Sruthi Shankar in Bengaluru; Editing by Sherry Jacob-Phillips, Shailesh Kuber and Alex Richardson
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