European stocks drop; Caution as ECB meeting, earnings eyed

European stock markets traded slightly lower early Thursday amid some disappointing earnings and as investors pause for breath ahead of a European Central Bank (ECB) meeting later in the day.

The pan-European STOXX 600 was down around 0.17 percent.

Lufthansa shares soar

On the earnings front, Publicis reported sales in the three months to September 30 fell 0.4 percent due to lost client accounts. But the company confirmed its full-year guidance for 2016. Shares in the firm fell 5 percent however.

Meanwhile, Nestle shares were in negative territory after it reported sales for the first nine months of the year that missed expectations and the Swiss food firm lowered its full-year guidance.

Pharma giant Roche confirmed its outlook for 2016 and said third quarter group sales rose 3 percent, but shares were mildly lower.

Lufthansa outperformed the broader market with shares rallying over 10 percent as the German airline raised its profit target for the year on Wednesday. Deutsche Bank also raised its price target for the stock. Air France-KLM also got a boost on the positive numbers from Lufthansa.

And Swedish Telecom operator Tele2 B was in positive territory after reporting third-quarter core profit that beat market expectations.

ECB rate decision in focus

Shares in Asia mostly rose while in the U.S., markets closed higher on Wednesday helped by strong earnings and the release of the so-called Beige Book by the Federal Reserve which confirmed the economy was doing well.

The ECB will be in focus today although the central bank is not expected to make any changes to its monetary policy. However, investors will be listening carefully to see if ECB President Mario Draghi will give clues about the direction of the quantitative easing program which is set to end in March 2017. Some reports suggest that the ECB could taper QE, but there is also the possibility that the asset purchase program could be extended.

“It is quite clear that there is growing disquiet on the part of some members of the council of the efficacy of the ECB’s bond buying program, particularly as the bank is likely to run out of eligible bonds to buy,” Michael Hewson, chief market analyst at CMC Markets, said in a note on Thursday.

“The recent rebound in yields has eased the pressure somewhat in this regard, but at some point the time will come where the pool of available assets will have run dry, which means ECB rules will have to change if the program is to be extended.”

Elsewhere, oil prices pulled back in the European trading session after an uptick in the U.S. on Wednesday following data from the Energy Information Administration that showed a 5.3 million crude oil drawdown.

Source: CNBC

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