European Stocks Flip-Flop as Investors Await Fed Chair Yellen's Testimony
European equity benchmarks were ricocheting between gains and losses on Tuesday after a number of companies reported worse-than-expected earnings and as investors awaited US Federal Reserve Chair Janet Yellen's address to Congress later in the day.
Traders will watch Yellen's comments closely for any signals of a rate increase at the US central bank's next meeting, which is scheduled to take place in March. The declines in stocks also come after the resignation of a senior member of US President Trump's administration following gains among equities in recent days driven by optimism about anticipated US economic policies pledged by Trump, such as tax cuts and fiscal expansion.
White House National Security Adviser Michael Flynn resigned on Monday over his contacts with a Russian official, according to media reports.
"The loss of a senior official less than a month into Donald Trump's term as US President does not bode well for the Republican as he looks to overhaul the existing political elite in Washington," Henry Croft, a research analyst at Accendo Markets in London, said. "However investors may pay little attention to the resignation as they instead focus on the main event in Washington and see whether Janet Yellen will definitively rule out a March rate hike, in a dovish move, or reiterate her institution's forecasts for three rate hikes over the course of 2017."
Stocks were also affected by slightly weaker than expected German gross domestic product (GDP) growth figures. The German economy, Europe's largest, expanded by 0.4% in the fourth quarter of 2016, Destatis, Germany's statistics office said on Tuesday. That was lower than the 0.5% predicted by economists in an investing.com poll. The office also revised its third-quarter growth to 0.1% from 0.2% reported earlier.
UK consumer prices, meanwhile, rose 1.8% from a year earlier in January following an annual increase of 1.6% in December, Britain's Office for National Statistics said. It was slightly lower than the 1.9% forecast by economists in an investing.com poll.
In equities, Rolls Royce, a British engine maker, dropped almost 5%, making it the worst performer in Europe's benchmark STOXX 600 index, after posting a reported loss before tax of 4.03 billion pounds ($5.02 billion) for the 2016 year after a reported tax credit of 604 million pounds. This compared to a reported profit before tax of 84 million pounds in 2015. BAE Systems, a British defense, security, and aerospace company, declined 2% in London and mining stocks were also lower, reversing gains seen in recent days, with Anglo American down 1% in London.
France's BIC, which makes disposable consumer products such as pens, lighters and razors, lost 2.4% and Rexel, a distributor of electrical supplies to professional users, slid 1.6% in Paris. French utility EDF was 0.4% lower after its core 2016 earnings fell more than 6% due to a reduction in nuclear production, CNBC reported.
The Europe-wide STOXX 600 index fell 0.1% and the euro-region blue-chip STOXX 50 index dropped 0.2%. The DAX in Frankfurt slid 0.1%. The FTSE 100 in London was 0.1% lower and the CAC 40 in Paris was little changed.
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