European equities edge to all-time highs over earnings optimism

Equities updates

European stock markets inched to new all-time highs as optimism about improved corporate earnings eclipsed concerns about the impact of the spread of the Delta variant of coronavirus.

The regional Stoxx 600 index and the UK’s FTSE 100 both hit new peaks in early trading after climbing 0.5 per cent each, chasing new records notched by Wall Street on Tuesday.

European shares were led higher by economically sensitive consumer and financial companies, while the Stoxx was boosted by technology shares, which have benefited from the shift to homeworking throughout the pandemic.

Markets in Asia also gained, despite the rapid spread of Covid-19, with stocks on Hong Kong’s Hang Seng index up more than 1.2 per cent to hit a two-week high while the CSI 300 index of shares listed in Shanghai and Shenzhen gained 0.9 per cent.

The Hang Seng tech index, which includes Chinese internet giant Tencent, rose 2.4 per cent, rebounding after criticism of the technology and gaming industry by Chinese authorities hit the prices of online gaming companies. Tencent, whose 11 per cent fall on Monday wiped almost $60bn off its market capitalisation, rose 3 per cent on Tuesday.

An unusually strong earnings season has helped buoy markets on both sides of the Atlantic, with the majority of companies that have reported so far exceeding analyst expectations. Germany’s Commerzbank was an exception, reporting a higher-than-expected loss in the second quarter on Wednesday as it struggled to contend with €500m in restructuring costs and the writedown of a botched IT project. Its shares fell 4.4 per cent.

Despite the optimistic mood in stocks, yields on US 10-year bonds were little changed near three-week lows. Bonds have rallied in recent weeks even as inflation numbers have continued to exceed targets, a dynamic that would usually make the assets’ fixed income returns less attractive. Yields fall when prices rise.

“The Delta coronavirus variant remains a key focus, not least in the oil market, given concerns that the global economic rebound could be losing steam,” Steen Jakobsen, of Saxobank, wrote in a note. “This development may drive additional government support while keeping bond yields low despite rising inflation.”

Brent crude oil rose 0.5 per cent. Spot prices in Asia have trended lower, with the Shanghai INE crude benchmark losing 1.2 per cent as the virus spreads rapidly in the region.

In currencies, the dollar lost a further 0.1 per cent against a basket of peers, bringing its decline to 1 per cent since the beginning of July.

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