Markets rally on positive earnings and ECB`s dovishness

Thursday was a busy day for investors who focused their attention on Europe first, as the ECB’s President Mario Draghi delivered a rather dovish press conference in Malta after a two days meeting of the Governing Council, and then US, where several big names such as AT&T, Google and Microsoft reported earnings for the quarter ending on September 31st.

Both European equities and bonds extended gains this morning, after rallying yesterday, supported by the strong commitment of the ECB to continue its monetary easing and the Central Bank’s reiteration that it is ready to increase or expand its current QE program, should the major economic indicators continue to deteriorate. The asset class that benefits directly form Mario Draghi’s dovish comments is European sovereign bonds, whose yields dropped substantially over the last trading session. Equity were also boosted by the ECB meeting, with the Euro Stoxx 600 Index gaining 2.03% yesterday and adding another 1% this morning.

US stocks also delivered a resilient session on Thursday, lifted by positive earnings expectations for major domestic names and following Europe in positive territory. All major US equity indices posted gains above 1.5%, with the Dow Jones Industrial Average closing 1.87% higher on the day. The earnings expectations that contributed to fuel the daily rally have been exceeded in most of the results released after the US closing bell, with A&T, Microsoft, Google and Amazon, all beating analysts’ estimates.

AT&T, US largest telecommunication company by market capitalization, posted positive results after both revenues and profitability received a boost from the completion of its acquisition of DirectTV, which strongly contributed to AT&T’s cash flow generation. The firm reported solid revenue of $39 billion, which, despite missing analysts’ estimates by $1.32 billion, recorded a year-on-year increase of 19%. While the management had already said that market’s expectations were overblown, as analysts were miscounting the real contribution of the DirectTV’s unit, investors were rather satisfied to see a slow growth company increasing its sales by almost a fifth. Profit for the quarter came in at $0.74, beating the market’s consensus by 5 cents and confirming that the firm is on the right path to reduce costs while leveraging the additional revenues brought in by the newly acquired DirectTV. The company also managed to grow its domestic customers’ basis, adding 2.5M net new subscribers and 192,000 new IP broadband connections. Shares in AT&T rose 1.10% during the trading session, while adding another 1.85% in After-Hours trading.

Microsoft Corp. was another big winner yesterday, as the oldest pure technology company on the market reported outstanding results for both on revenues and earnings per share. The company posted revenues of $21.7 billion, beating analysts’ expectations by $650 million, although this represents a 6.5% decline from the same period last year. However, the technology giant is still facing declining sales, primarily due to a slump in computer and laptop sales, which is negatively impacting sales of Windows and Office that still remain the firm’s core products. Profit per share came in at $0.67, beating markets estimations by $0.08, as the company continues to streamline its corporate and costs structure in order to increase profitability. Shares in Microsoft rose 1.76% yesterday and soared over 7.5% in After-Hours trading.