European shares rise on U.S.-China talks, earnings optimism

(Reuters) – European shares rose on Friday as signs of improving U.S.-China relations gave a fresh dose of optimism for investors counting on the easing of lockdowns to spark a recovery in global growth.

FILE PHOTO: The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, May 7, 2020. REUTERS/Staff

The pan-European STOXX 600 rose 0.6%, boosted by a 5.1% jump in Siemens (SIEGn.DE) after the German industrial company announced cost-cut plans to deal with the impact of the pandemic following an 18% drop in industrial profit in the second quarter.

Shares in the largest Dutch bank, ING Groep NV (INGA.AS), gained 6.4% as it posted first-quarter pretax earnings that beat market expectations.

Bourses in Frankfurt .GDAXI and Paris .FCHI rose 0.8% and 0.6%. London markets were closed for a public holiday.

Top U.S. and Chinese trade officials discussed Phase 1 trade deal on Friday, and China said it agreed to improve the atmosphere for its implementation.

That offered some relief to investors worried about rising tensions between the two countries after U.S. criticized China’s handling of the novel coronavirus outbreak.

The STOXX 600 is on course to post its second consecutive week of gains despite trading in a narrow range in recent days, as many countries including Germany, Italy and Spain eased tight restrictions put in place to limit the spread of the virus.

Investors have looked past dire economic data on hopes of a recovery. Data due later in the day will likely show the U.S. economy lost a staggering 22 million jobs in April in what would be the steepest plunge in payrolls since the Great Depression.

All eyes will also be on decisions from rating agencies DBRS and Moody’s on Italy’s sovereign debt later in the day. Most analysts do not expect a downgrade from both. Moody’s rates Italy at Baa3, one notch above non-investment-grade.

“As we do not expect a downgrade by Moody’s, the likelihood is that we will see a solid start on Monday,” UniCredit analysts wrote in a note.

“Nevertheless, investor concerns about a possible cut to below IG by one rating agency are likely to persist in the coming quarter.”

Italy’s FTSE MIB .FTMIB lagged its euro zone peers with a 0.1% gain. Spanish shares .IBEX were also flat.

Among decliners, German military equipment and auto parts group Rheinmetall (RHMG.DE) slid 2.6% as it forecast significantly lower sales and profits this year due to the pandemic.

Reporting by Sruthi Shankar in Bengaluru; Editing by Anil D’Silva

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