EUROPE MARKETS: Europe Stocks Cautious As ECB Decision Looms

By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) -- European stock markets traded cautiously on Thursday, with nervousness settling in ahead of the European Central Bank meeting. It was also a busy day for corporate earnings, with Statoil SA and Sanofi SA among those shares dropping after results, while Infineon Technologies AG soared on an upbeat view.

The Stoxx Europe 600 index was flat at 296.47. European markets were shuttered on Wednesday for the May Day holiday, and the index closed off 0.2% on Tuesday, but closed out April with a 1% gain to 296.72.

Ahead of the ECB meeting later, some pressure on the Stoxx 600 was coming from a few heavyweights that reported results. Among the heavyweights, Statoil SA shares fell 2.8% after the Norwegian oil and gas company said first-quarter profit sank 58% on the year, missing forecasts, as production volumes and prices fell.

Some downward pressure was also coming from a tumble for Wall Street stocks on Wednesday after the Federal Reserve said it would continue its $85 billion monthly bond-buying program, but said it would cut or increase that program depending on how the economy was performing. Major U.S. indexes all fell around or close to 1% each.

Sanofi SA (SNY) dropped 2.5% after the French drugmaker posted a 45% drop in first-quarter profit and a 5.3% sales fall, as the company is still suffering from lost patent protection. The pharmaceutical company said it expects a return to growth later in the year as that patent effect eases and new products come through the pipeline.

Away from earnings, the main event for markets will be a decision from the ECB on monetary policy, due at 7:45 a.m. Eastern time, while the press conference of ECB President Mario Draghi s due to begin at 8:30 a.m. Eastern. Economists largely expect the ECB will cut its benchmark interest rate by 25 basis points to 0.5%.

"Many feel a rate cut was largely priced in as European shares climbed nearly 4 percent last week," said Lee Mumford, financial sales trader at SpreadEx, in a note to investors.

Analysts at Credit Suisse said in a note that a potential rate cut is unlikely to affect European banks, "in part because we do not see it as sufficient to have an impact on the current negative macro background." They said Spanish and Italian banks could be most negatively hit by a rate cut, as they expect up to 6% of 2014 earnings potentially at risk.

Credit Suisse analysts said they remain cautious on those peripheral banks, but retain a market perform rating on higher-quality names that offer superior cash flow potential, including HSBC PLC (HBC) , BNP Paribas SA , Societe Generale SA and Julius Baer Gruppe AG

Banks were largely firmer across core European countries. Shares of BNP and Societe Generale rose 1.3% and 1%, respectively, in Paris, providing some support to the French CAC 40 , which eased 0.2% to 3,850.41 amid pressure from heavyweight Sanofi.

The German DAX 30 index rose 0.2% to 7,932.14 as heavyweights Commerzbank AG and Deutsche Bank AG added 1.5% and 2% each, respectively.

Shares of industrial conglomerate Siemens AG (SI) fell 0.6% after it lowered its profit view due to project-related charges, a tough economic climate and losses for its solar unit. Net profit rose 12% in the January-to March period, and it posted a rise in orders for the fiscal second quarter.

Shares of Infineon surged over 6% after the semiconductor maker said it expects higher revenues and margins for full-year 2013, lifted by market growth and recovering demand for autos.

The FTSE 100 index fell 0.1% to 6,442.44. Shares of BG Group PLC rose 3% after the oil and natural gas company reported a 0.8% fall in net profit for the first quarter, but said it was on track to meet project milestones for this year.

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