Europe midday: Stocks pare gains, but trade deal optimism provides support

(Sharecast News) - European stocks pushed higher on Thursday but had come off their highs by lunchtime as investors scaled back risk appetite ahead of a European Central Bank meeting, though sentiment remains supported by rising trade deal optimism.

After having risen as much as 0.7% early on, the Stoxx 600 was up 0.4% at 552.60 by 1215 CEST, with regional bourses putting in a mixed performance.

The FTSE 100 was up 1%, on track to register its fourth straight record close; the DAX trimmed an earlier 1.1% gain to 0.5%; the FTSE MIB was down 0.2%; the IBEX 35 surged 1.5%; while the CAC 40 was flat.

The ECB, which will announce its policy decision at 1315 BST, is widely expected to keep interest rates on hold, though markets will be watching comments from ECB president Christine Lagarde, particularly given the recent rally in the euro.

"Several Governing Council members have already voiced discomfort with the euro's strength. If even a faint echo of that makes it into Lagarde's remarks, markets will interpret it as a dovish nod," said Stephen Innes, managing partner at SPI Asset Management.

The EUR/USD had pulled back 0.2% to 1.1748 on Thursday morning after having jumped 1.2% over the past two sessions on the back of hopes that EU officials can agree a trade deal with the US before the 1 August deadline. According to the Financial Times, it is thought that a deal could be struck along similar lines with the deal with Japan announced on Wednesday, which slapped a 15% tariff on imports into the US.

Lee Hardman, analyst at MUFG, said that potential deal - if finalised as reported - would "help to dampen downside risks for European economies". Hardman said: "It is not clear if a trade deal will be officially announced ahead of today's ECB policy meeting. However, it should not have a significant impact on the ECB's immediate policy decision as they were already expected to leave rates on hold even before the latest trade news."

Economic data disappoints

Investors were having to contend with raft of economic data from the continent early on, including the flash readings of eurozone purchasing managers' indices (PMIs) for July which came in mixed.

The overall eurozone composite PMI rose to 51 from 50.6 in June, though the German composite PMI unexpectedly weakened and the French composite PMI remained below the neutral 50-point level for the 11th straight month (albeit showed an improvement over the month).

Meanwhile, German consumer confidence unexpectedly fell to a four-month low. The forward-looking GfK consumer climate indicator fell to -21.5 in August from -20.3 the previous month, missing the -19.2 consensus forecast.

Consumer willingness to spend money declined despite ongoing improvements in income expectations, while saving preferences reached their highest in nearly one and a half years. Economic expectations, meanwhile, suffered a "severe setback" due to ongoing uncertainty around the economy and the impact of US tariffs.

London's blue chips impress, Deutsche Bank jumps

A host of London-listed heavyweights impressed investors in morning trade with their half-year updates, with joinery group Howden, broadcaster ITV, consumer products maker Reckitt Benckiser and telecommunications giant BT all jumping 9% or more.

Elsewhere, Finnish oilfield services group Neste was a high riser, jumping 15% after topping analysts' forecasts with second-quarter profits, helped by strong demand in its sustainable aviation fuel operations.

Lastly, shares in Deutsche Bank surged 7% after the German bank beat forecasts with its second-quarter results, driven by a strong performance in investment banking and lower costs.