European stocks rise as defensive buying helps offset losses on downbeat earnings

The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, October 8, 2021. REUTERS/Staff
Ericsson flags supply chain issuesDanone slips as Q3 sales growth slowsRoche falls as COVID-19 treatment fails to help patients

Oct 19 (Infoday) – Some positive earnings and defensive buying kept Europe’s main stock index in the black on Tuesday, helping offset losses in Sweden’s Ericsson and French consumer goods giant Danone after downbeat results.

The pan-European STOXX 600 (.STOXX) rose 0.3%, staying close to one-month highs. Utilities (.SX6P) and industrials (.SXOP) led gains, while German reinsurer Munich Re (MUVGn.DE) rose 2.6% after doubling its profit in the third quarter.

Some upbeat earnings from Wall Street, including Johnson & Johnson (JNJ.N) and Travelers (TRV.N), also boosted sentiment.

Capping gains were food and beverage names (.SX3P) after Danone (DANO.PA) warned of growing inflationary pressures next year, pulling France’s CAC40 index (.FCHI) 0.1% lower. Danone, peers Nestle (NESN.S) and Unilever (ULVR.L) slipped between 1.3% and 3%.

Telecom stocks (.SXKP) followed, down 0.8% as Sweden’s Ericsson (ERICb.ST) and Tele2 (TEL2b.ST) fell 3.7% and 4.3%, respectively, after earnings. Ericsson announced plans to reduce its operations in China after suffering a big sales drop in one of its biggest markets. read more

As Europe’s third-quarter reporting season kicks into high gear, investors are scrutinising company results for any signs that supply-chain strains, labour shortages and surging energy prices are starting to undermine profits. read more

Third-quarter profits at European companies are expected to grow 47.6% from the same period in 2020, according to Refinitiv I/B/E/S data, with earnings revisions by analysts cooling recently but still remaining positive.

“It’s hard to see how further optimism about earnings would boost the market too much at this point just because of how much good news is already discounted in share prices,” said Thomas Mathews, markets economist at Capital Economics.

The STOXX 600 has gained almost 3% so far in October after a 3.4% drop in the previous month, as investors turned to riskier assets in expectation of a steady earnings season.

“With rates starting to rise and inflation picking up, the days of big, sustained rallies in the market are over, but we can expect to see European equities grinding higher for a while,” said Mathews.

Investors have been aggressively pricing in interest rate hikes, particularly in the UK, to offset a surge in energy prices and other bottlenecks driving general prices higher.

Gains in UK’s FTSE 100 (.FTSE) were capped by British Airways owner IAG (ICAG.L) after the UK aviation regulator said Britain’s biggest airport Heathrow will not be permitted to raise passenger charges by as much as it had wanted. read more

Drugmaker Roche (ROG.S) fell 1.7%, after its partner Atea Pharma (AVIR.O) said their experimental COVID-19 antiviral pill failed to help patients with mild and moderate COVID-19 in a study. read more

Reporting by Anisha Sircar and Sruthi Shankar in Bengaluru; Editing by Anil D’Silva and Bernadette Baum

Our Standards: The Thomson Infoday Trust Principles.

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