EUROPE MARKETS: Spanish Stocks Lead European Market Higher, As Investors Brace For ECB Move

By Carla Mozee, MarketWatch Features Dow Jones Newswires

Spanish stocks leap; Barclays, Deutsche Bank shares drop

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Shares of big lenders Barclays PLC and Deutsche Bank AG fell Thursday after financial results failed to please, but European stocks managed to cling to small gains. Investors are bracing for the European Central Bank's long-awaited decision on its asset-purchase program later.

What stock indexes are doing

The Stoxx Europe 600 index was up 0.3% at 388.59, with only the tech and health care sectors in the red. On Wednesday, the index fell 0.6% (http://www.marketwatch.com/story/gucci-parent-helps-lift-luxury-stocks-but-european-markets-stay-in-their-rut-2017-10-25), a second consecutive decline.

The improvement came alongside a surge in Spanish equities, pushing the IBEX 35 up 1.8% to 10,330.20. There, Banco de Sabadell SA (SAB.MC) leapt 4.7% and BBVA (BBVA) climbed 2.7%.

Germany's DAX 30 index put on 0.1% at 12,970.23, and France's CAC 40 tacked on 0.1% at 5,389.00.

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In London, the FTSE 100 (http://www.marketwatch.com/story/barclays-shares-shoved-lower-as-ftse-100-steadies-ahead-of-ecb-2017-10-26) rose 0.2% to 7,463.67.

What's driving markets?

As investors wade through a new round of corporate earnings results, they are getting ready to hear what ECB policy makers plan for the central bank's quantitative easing.

Ahead of the ECB, a rally in Spanish stocks was triggered on reports that Catalan President Carles Puigdemont will dissolve the region's parliament (http://www.marketwatch.com/story/spain-stocks-rally-on-reports-catalan-leader-will-dissolve-parliament-hold-early-elections-2017-10-26) and call early elections. Leaders in Catalan and in Madrid have been locked in political crisis after Catalan separatists earlier this month held an independence referendum that Spanish constitutional courts deemed illegal.

Back to the ECB, the bank's bond buying program of 60 billion euros ($71 billion) in purchases a month is scheduled to stop at the end of 2017. The focus is now on discovering for how long the ECB will extend the program and how much the monthly purchases will be. Most economists expect bond buying to fall to EUR20 billion to EUR30 billion a month beginning in January, and for the program to run until September or December 2018.

Stubbornly low inflation and high unemployment are expected to be factors in any ECB decision to stick with stimulus efforts.

The bank's statement is expected at 12:45 p.m. London time, or 7:45 a.m. Eastern Time. ECB President Mario Draghi will hold a press conference at 1:30 p.m. London time.

See:Mario Draghi needs to avoid a 'taper tantrum' when the ECB meets (http://www.marketwatch.com/story/mario-draghi-needs-to-avoid-a-taper-tantrum-when-the-ecb-meets-2017-10-23)

And read: Why Italy faces worst shock in Europe as ECB prepares to taper bond buys (http://www.marketwatch.com/story/why-italy-faces-worst-shock-in-europe-as-ecb-prepares-to-taper-bond-buys-2017-10-24)

The euro bought $1.1809, little changed from $1.1813 late Wednesday in New York. Against the pound, the shared currency traded at 0.8932 pence, up from 0.8907 pence in the previous session.

What strategists are saying

"A recent 'ECB sources' story said the Governing Council is considering a 9-month extension to the program, with a sharper reduction in monthly purchases, and that is now consensus (EUR30 billion/month for 9 months). Anything longer than that and [the euro] should soften, with 1.1660 serving as key support."

-- Elsa Lignos, global head of FX strategy at RBC

"We are looking for a nine-month extension of the APP program starting in January at a monthly pace of EUR25 billion a month. We expect the ECB to keep the door open to more QE thereafter if needed: The APP program would continue to be open-ended and data-dependent. Yet, our baseline scenario is that the QE program will end in September 2018, paving the way for a first rate hike in spring 2019 to put an end to the negative deposit rate."

-- Guy Stear, head of fixed income research at Societe Generale

Bank shares decline

Some major banks suffered after releasing financial results that failed to live up to the hopes of investors.

Deutsche Bank AG (DBK.XE) (DBK.XE) shares fell 2%. Third-quarter profit at Germany's biggest bank (http://www.marketwatch.com/story/deutsche-bank-shares-fall-even-as-profit-doubles-2017-10-26) more than doubled to EUR649 million, beating analysts' expectations. Despite the rise in profit, the results show Germany's biggest bank still has significant ground to cover to convince investors its rebuilding efforts will pay off after years of disappointment and deep cost-cutting.

Barclays PLC (BCS) (BCS) slid 6%, facing their worst session since June 2016, immediately after the U.K.'s Brexit referendum. The British lender said third-quarter revenue fell 5% (http://www.marketwatch.com/story/barclays-shares-slump-on-investment-bank-weakness-2017-10-26) from a year ago, after its investment bank was hit by low market volatility, which hurt trading revenues.

Shares of Nordea Bank AB (NDA.SK) fell 5.7%, after the Swedish firm said net interest income rose slightly in the third quarter (http://www.marketwatch.com/story/nordea-bank-posts-rise-in-net-interest-income-2017-10-26) although its profit-before-loan losses fell.

But Banco Santander SA (SAN) shares bulked up 3.4%, extending gains as stocks in Madrid overall jumped. The Spanish lender said net interest income rose to EUR8.68 billion from EUR7.80 billion a year ago (http://www.marketwatch.com/story/banco-santander-net-profit-falls-2017-10-26). But net profit was down from a year ago.

Stock movers

Nokia Corp. (NOK) (NOK) shares plunged 12% after the Finnish telecommunications company said its quarterly net loss widened to EUR183 million. It warned that the mobile networks market would fall (http://www.marketwatch.com/story/nokia-loss-wider-than-seen-in-weak-networks-market-2017-10-26) more than previously expected this year.

Shares of STMicroelectronics NV (STM) bounced up 6.8%, with the chip maker posting a better-than-expected rise in third-quarter sales and net profit (http://www.marketwatch.com/story/stmicroelectronics-profit-rise-beats-forecasts-2017-10-26) to $236 million.

Economic data

Lending to eurozone firms increased (http://www.marketwatch.com/story/eurozone-lending-to-companies-picks-up-pace-2017-10-26) at a faster pace of 2.4% in September than in August, data from the European Central Bank showed Thursday.

(END) Dow Jones Newswires

October 26, 2017 07:31 ET (11:31 GMT)