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European stocks waver after ECB meeting and US economic data

Equity markets largely shrugged off the European Central Bank’s decision to slow its bond-buying programme and disappointing US economic data, with investors fixated on earnings reports from America’s corporate titans.

The regional Stoxx 600 share index was flat in early afternoon trading after the ECB said that its €1.85tn pandemic emergency purchasing programme would carry on at a “moderately lower pace” than in the second and third quarters of 2021. It also opted to keep the benchmark rate stable at minus 0.5 per cent, notwithstanding a backdrop of persistent high inflation.

Outside of the bloc, London’s premium FTSE 100 index fell 0.4 per cent.

Across the Atlantic, futures markets indicated that Wall Street would open higher — with the S&P 500 blue-chip share index rising 0.3 per cent and the technology-focused Nasdaq 100 index up 0.5 per cent.

Those moves were underpinned by a strong earnings update from Caterpillar, which is widely perceived as an economic bellwether. The machinery giant posted third-quarter sales of $12.4bn, up by 25 per cent, and profits of $1.4bn, up from $668m.

Many more US companies are due to report in the next week, with tech behemoths Apple and Amazon both scheduled to deliver figures after the closing bell on Thursday.

That positive sentiment was tempered by data showing the US economy expanded at an annualised pace of 2 per cent in the third quarter, down from 6.7 per cent in the previous three-month period. Economists polled by Refinitiv forecast a 2.7 per cent growth rate in third quarter.

Meanwhile, government debt yields were broadly steady on Thursday after significant swings a day earlier. The UK’s 10-year gilt posted its biggest one-day rally on Wednesday since March 2020, after the government slashed its planned debt sales by almost £60bn — a much bigger cut than traders had forecast. On Thursday, the yield on the benchmark bond was flat at 0.99 per cent.

“It’s still variants of the stagflation theme that are dominating markets,” said Will Hobbs, chief investment officer at Barclays Wealth and Investments — referencing a combination of rising inflation and slowing economic growth.

Beyond the ECB, a number of other central bank meetings are due in the coming days for the Reserve Bank of Australia (Tuesday), the Federal Reserve (Wednesday) and the Bank of England’s Monetary Policy Committee (next Thursday).

Officials are expected to outline how they will tackle inflationary pressures that have been prompted by post-pandemic demand increases paired with supply shortages.

Fresh data on Thursday showed that German inflation topped expectations in October, reaching 4.5 per cent. Analysts at Commerzbank said a further rise in energy prices — which have surged in recent weeks because of a supply crunch — “is likely to push up the inflation rate strongly once again in November”, before price rises significantly reduce next year.

What to watch in markets today

Apple and Amazon: The two biggest listed companies in the world report earnings after the bell. Analysts expect Apple’s revenue to top $84.8bn in its fourth quarter thanks to solid demand for its laptops and phones, while Amazon’s revenue is forecast to come in at about $111.6bn. Commentary on supply chain issues, particularly heading in to the busy holiday season, will be of particular interest.

Biden’s spending plan: The US president is set for a busy morning ahead of his departure for a G20 leaders meeting in Italy. With negotiations over his $2tn spending package becoming particularly difficult, Joe Biden is expected to attend the House Democratic caucus meeting at 9am eastern time in an effort to secure the support of progressive lawmakers. The White House said the president will deliver remarks on Thursday morning, probably following this meeting and before flying to Rome. Biden will attend the COP26 climate summit in Glasgow, which begins on Sunday.

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