Sun, Oct 30, 2016 - Page 14 News List

European stocks retreat on weak earnings


An avalanche of earnings announcements added to concerns about the health of European companies, with the region’s shares slipping for five days straight.

For banks, though, the week was good: They are no longer the year’s worst-performing industry.

While results at companies from Novo Nordisk A/S to Anheuser-Busch InBev NV disappointed investors, UBS Group AG was among the lenders that reported better-than-projected earnings.

The region’s banks this week rallied more than any other industry group, losing their spot as biggest decliners of the year. A gauge tracking the industry moved in opposite directions to the benchmark STOXX Europe 600 Index for a third week out of four.

Barclays PLC was among the firms that posted a jump in fixed-income trading revenue, sending its shares to the highest since January. Banco Bilbao Vizcaya Argentaria SA traded near its highest since April after reporting that profit beat estimates as trading income climbed.

A rise in government-debt yields has also helped lenders in recent weeks, with those on benchmark 10-year German bonds on Friday reaching an about six-month high.

“The rise in yields is paving a path for a more suitable interest-rate environment for banks and we are seeing bond trading revenues have picked up,” London-based CMC Markets analyst Jasper Lawler said. “For the rest of the equity market, there is a certain degree of hesitancy given that we are still in the earnings season and several central banks are meeting next week.”

The better-than-expected earnings reports, combined with that many European banks are cutting costs and restructuring, has helped restore some investor confidence in the sector, Lawler said.

Still, investors’ concerns over the path of interest rates and their impact on equities has lingered, he added.

On Friday, the STOXX 600 Banks Index hovered around a five-month high reached on Thursday. While UBS gained 2.4 percent, Royal Bank of Scotland Group PLC reversed an advance and traded 1.2 percent lower after pushing out profitability targets on a weaker outlook and looming charges. Danske Bank A/S lost 2.2 percent as some analysts said its jump in earnings did not change fundamental views on the investment case.

The broader STOXX 600 fell 0.3 percent, taking its weekly decline to 1 percent.

Novo Nordisk sank 15 percent, the most since 2002, and AB InBev lost 4.3 percent after they cut their forecasts.

Those sent Europe’s benchmark gauge down as much as 1 percent before a report showed the US economy expanded more than forecast in the third quarter.

As speculation increased about the path of European Central Bank stimulus, investors have remained skeptical about its ability to spur the economy.

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