Earnings help European stock markets rebound after sell-off

European stock markets rallied on Friday, as strong corporate earnings helped indexes recover from Thursday’s sell-off.

Equity markets across Europe had tanked on Thursday, as countries ramped up restrictions to tackle the rising COVID-19 second wave.

Major markets rebounded strongly on Friday. By mid-afternoon, the FTSE 100 (^FTSE) was trading 1.3% higher, while the CAC 40 (^FCHI) gained 1.7%, and the DAX (^GDAXI) rose 1.2%.

In London, Rolls-Royce (RR.L) topped the FTSE 100 with a gain of 10%. On Thursday, the company successfully completed a £2bn bond offering, double what it initially planned to raise. The size of the bond issue was increased due to investor demand.

In Frankfurt, Mercedes-Benz owner Daimler (DAI.DE) jumped more than 5% after a bullish earnings update last night. Third quarter earnings were €3bn — more than the €2.5bn investors had expected — and the company said strong sales momentum was expected to continue for the rest of the year.

In Paris, luxury group LVMH (MC.PA) surged to the top of the CAC 40 after a strong quarterly update. LVMH said sales at its fashion and leather goods arm grew by 12% in the third quarter, powered by brands like Louis Vuitton and Dior. Shares rose 7%.

Despite the momentum, all three major European indexes were still trading below levels seen on Wednesday.

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Analysts said investors remained cautious as a result of uncertainty around Brexit and US stimulus. Rising COVID-19 cases and increased restrictions around the world were another factor weighing on sentiment.

“There is no scarcity of bad news in the market,” said Naeem Aslam, chief market analyst at Avatrade.

“It doesn't matter if one is looking at the potential coronavirus vaccine's performance or the current earnings season. It is pretty much a dark mood everywhere among investors.”

Emmanuel Cau, Barclays’ head of European equity strategy, said: “While we await results of the US elections, progress on vaccines and a Brexit outcome, the next few weeks may feel like being inside the twilight zone.”

In a statement lunchtime on Friday, UK Prime Minister Boris Johnson told people to prepare for a no deal Brexit and his spokesperson said talks with the EU were effectively over. The EU insisted talks were set to continue next week. The pound was down 0.2% against the euro (GBPEUR=X) and flat against the dollar (GBPUSD=X).

READ MORE: Pound drops as Boris Johnson tells UK to prepare for no deal Brexit

Wall Street opened modestly higher. The S&P 500 (^GSPC) was up 0.4% shortly after the beginning of trade, while the Dow Jones index (^DJI) was 0.6% higher and the Nasdaq (^IXIC) was up 0.5%.

Action was mixed in Asia overnight. Japan’s Nikkei (^N225) fell 0.4%, the Hong Kong Hang Seng (^HSI) rallied 1%, the Shanghai Composite (000001.SS) was flat, and the Shenzen Component (399001.SZ) fell 0.7%.

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