EUROPE MARKETS: Europe Stocks Still Choppy After ECB Rate Cut

By Barbara Kollmeyer, MarketWatch

MADRID (MarketWatch) -- European stock markets stayed choppy after a European Central Bank rate cut on Thursday, showing muted reaction to the widely expected move. On a busy day for corporate earnings, Statoil SA and Sanofi SA dropped after results, while Infineon Technologies AG soared on an upbeat view.

While some regional indexes added to earlier gains, the Stoxx Europe 600 index was flat at 296.84, largely unchanged from where it traded ahead of the ECB outcome. 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.

Some pressure on the Stoxx 600 was coming from a few heavyweights that reported results. Among the heavyweights, Statoil SA shares fell 3.3% after the Norwegian oil and gas company said first-quarter profit sank 58% on the year, missing forecasts, as production volumes and prices fell.

Sanofi SA (SNY) dropped 1% 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.

The euro rose and U.S. stock futures pushed ahead after the ECB met expectations with a cut to its benchmark rate of 25 basis points, to 0.5%.

Investors will now look to a press conference with ECB President Mario Draghi, which began at 8:30 a.m. Eastern.

"The press conference is crucial and it will be fascinating to see how Mario Draghi addresses the dilemma of low inflation and low real growth, i.e., low nominal growth...tending to negative nominal growth," said Stephen Pope, managing partner at Spotlight Ideas in a note.

"There may well be a shift in the rules on collateral requirements, but that is simply fiddling with the fraying edges. What is required is a real hit to the monetary transmission system, so making the cost of holding capital at the ECB less attractive than lending," he said.

Data ahead of that meeting showed eurozone manufacturing activity contracted at a slower-than-forecast pace in April, with the manufacturing PMI falling slightly to 46.7 from 46.8 in March, according to Markit. German output contracted for the first time in 2013.

Some downward pressure on markets in Europe also came 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.

Analysts at Credit Suisse said in an earlier note that any rate cut would largely not 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

But shares of Banco Santander SA rose over 1% in Madrid, helping boost the Spain IBEX 35 index .

That was in step with a firmer tone for banks. Shares of BNP and Societe Generale rose nearly 2% and 1.5%, respectively, in Paris, providing some support to the French CAC 40 , which rose 0.1% to 3,860.93 amid pressure from heavyweight Sanofi.

The German DAX 30 index rose 0.4% to 7,944.71 as heavyweights Commerzbank AG and Deutsche Bank AG jumped nearly 4% and 2.5% each, respectively.

Shares of industrial conglomerate Siemens AG (SI) rose 1%. The group 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, but it posted a rise in orders for the fiscal second quarter.

Shares of Infineon surged nearly 8% 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 was flat at 6,447.77. Shares of BG Group PLC rose 2.7% 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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