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European shares dented by weak earnings outlooks, but Zalando soars

IMF cited uncertainty from Britain's vote last month to quit the European Union as a major factor for its downgrade

By: Reuters | London |
July 19, 2016 11:46:52 pm
Europe, Europe shares market, Ericsson and AkzoNobel share earnings, Zalando shares, Brexit, Britain leaves Europe, Brexit effect, Effect of Brexit on European markets, Brexit efect, latest news, International news European stock markets are still feeling the after-effects of the Brexit referendum.

European shares touched a one-week low on Tuesday as weak earnings updates from the likes of Ericsson and AkzoNobel weighed on markets, although online fashion retailer Zalando surged.

The pan-European STOXX 600 and the similar FTSEurofirst 300 index both closed down 0.4 percent, having hit one-week lows earlier in the session. The STOXX 600 is down around 8 percent so far in 2016.

Mobile telecoms gear maker Ericsson fell 5.6 percent, the worst performer on the STOXX 600, after it forecast a third consecutive year of comparable sales declines.

“Another set of disappointing results, and a discouraging outlook,” said Susan Anthony, European equity research analyst at Mirabaud Securities, commenting on Ericsson’s results.


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Dutch chemicals company AkzoNobel also fell 4.3 percent. It beat analysts’ second-quarter earnings forecast, but warned that the currency volatility and deflationary pressures that overshadowed the results were set to continue.

Weaker metals prices also knocked back the shares of major mining stocks, with the STOXX Europe 600 Basic Resources index – which houses top miners such as Rio Tinto and Anglo American – falling 2.4 percent.

Banks were also under pressure, with the Italian banking sector down around 50 percent in 2016 due to concerns over Italian banks’ bad debts, retreating 0.6 percent.

A relatively rare bright spot was Zalando, which surged 22 percent after Europe’s biggest dedicated online fashion retailer raised its forecast for full-year profitability after reporting a jump in preliminary sales for the second quarter.

However, the generally downbeat mood was reinforced by the International Monetary Fund’s decision to cut its global growth forecasts for the next two years.

The IMF cited uncertainty from Britain’s vote last month to quit the European Union as a major factor for its downgrade, with European stock markets still feeling the after-effects of heavy losses in the immediate aftermath of the Brexit referendum.

Societe Generale analysts said European banks could be most at risk from the weakening economic backdrop.

“European banks are facing a combination of headwinds including Italian banks’ capital deficit, weaker European bank fundamentals and Brexit/political risk,” they said in a note.

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