Europe close: Italy holds onto gains, others do not
Outside of Italy, most of Europe's main stock benchmarks failed to hold onto early gains as growth expectations for Germany were curtailed and European Central Bank confirmed the end of its quantitative easing programme.
Germany's IFO took an axe to its forecasts for the euro area's largest economy. The research institute forecast that German gross domestic product will only expand by 1.5% in 2018, followed by growth of 1.1% in 2019, as softer global growth prospects drag on its export performance, especially that of its carmakers.
That was down from its prior forecasts for GDP growth of 1.9% for each of those years.
The downbeat prognosis was echoed by the country's ministry of economics, which in its latest monthly economic report said that trade conflicts, turmoil in emerging market currencies, and the risk of a hard Brexit were all weighing on global growth prospects and business confidence.
At the close, the benchmark Stoxx 600 dropped 0.2% to 349.42, with France's CAC 40 slipping 0.3% to 4896.92, Germany's DAX slightly the wrong side of flat at 10924.70.
Italy's FTE MIB was the exception, climbing 0.5% to 19,048.83.
After the Italian coalition government's surprise decision to cut its budget deficit goal, European Union economic affairs commissioner Pierre Moscovici said Italy has made "significant effort" on its budget, "but we're not there yet".
The yield on the benchmark 10-year Italian government note was extending its recent retreat, falling by four basis points to 2.96%, although it was off its intra-session lows of 2.88%, while the spread between Italian and German 10-year bonds was at its tightest since late September and Italian two-year bond yields hit their lowest level in six months.
Acting as a backdrop, as expected the European Central Bank kept all its key interest rates unchanged on Thursday and, after three and a half years of quantitative easing where it amassed more than €2.5trn of assets, ECB confirmed it was wrapping-up its bond-buying programme this month.
The central bank retained its balanced risk assessment, though the risk view was ratcheted up and ECB staff marked down their GDP growth forecasts for the eurozone in 2018 and 2019 by just one tenth of a percentage point, to 1.9% and 1.7%, respectively.
However, the "momentous decision" to end the crisis-fighting QE program was taken in markets' stride after months and markets of flagging by the ECB.
"Enhanced forward guidance on reinvestments and more concrete talk of TLTROs added an expected dovish tilt to the announcement," said Oxford Economics.
ECB President Mario Draghi’s performance during the press conference "reinforced the sense that the ECB remains confident about the outlook as highlighted by the limited revisions to its forecasts", the economists added, also noting that the ECB's risk view was ratcheted up. "This supports our view that the ECB has no intention to rock the boat right now and retains its gradual tightening bias, while it awaits clarity on the evolution of several key risks."
In company news, there was continued chatter that the German government are trying to make it easier for Deutsche Bank and Commerzbank to merge.
"The idea seems to be a short-sighted as the German government are keen to halt the decline of both share prices, but the bank’s wider structural problems are likely to persist," said market analyst David Madden at CMC Markets. "Two troubled banks, don’t make one stable one. The two companies in question need to engage in an aggressive restructuring programme, and slim down in size."
Among the big gainers, Anglo-German tour operator TUI climbed after the posting a 10.9% increase in annual underlying earnings and said it expects more of the same for 2019.
German retailer chain Metro tumbled after reporting a 1.6% fall in sales and a 5.9% rise in net profit. On the outlook, Metro gave guidance for sales growth of between 1% and 3% new financial year, with a target for 2-6% growth in adjusted earnings before interest, taxes, depreciation and amortisation.
Swiss asset manager GAM dived 22% after withdrawing its dividend and announcing a restructuring program.