Markets

European shares pull back from 20-month highs

Disappointing corporate earnings weigh on Europe indices but Asia stocks extend gains

The euro was steady at $1.09480, retaining most of Monday’s 1.3 per cent gain.

Wed Apr 26 2017 - 08:14

European shares pulled back slightly from 20-month highs on Wednesday as some disappointing corporate results weighed, though shares of French luxury group Kering hit a record high after reporting strong sales.

The pan-European benchmark fell 0.1 per cent in early trades with financials the biggest drag.

France’s CAC 40 was little changed, hovering close to the nine-year highs hit earlier this week. While a broadly upbeat mood on equities, which has lifted world stocks to all-time highs, underpinned indexes, earnings reports were the biggest drivers of stock movers on the day.

Kering was the top gainer, up 10 per cent to record highs after strength at Gucci and Yves Saint Laurent helped the company meet market expectations. On the flipside, French stationery group Bic was the top faller, plunging 12 per cent to a more than two-year low, after its first-quarter net income and sales fell.

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Fertiliser producer Yara fell 5.5 per cent in healthy volumes, after it missed first-quarter forecasts as margins were squeezed by rising natural gas prices.

Credit Suisse, which kicked off much-anticipated results for European banks with plans for a $4 billion cash call, rose 2.8 per cent. They were handily outperforming the 0.5 per cent decline for the regional banking index.

Overall, first-quarter earnings for STOXX 600 companies were expected to rise 5.5 per cent, according to Thomson Reuters.

Risky assets

Asian stocks extended gains for a fifth consecutive day on Wednesday, as renewed optimism about the world’s biggest economy brightened the outlook for risky assets while the euro held on to previous gains as political concerns in France ebbed.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent, hovering near their highest since June 2015. Stock markets in Japan and Australia led gainers.

A strong finish to US markets was the main driver for Asia. The Nasdaq Composite hit a record high on Tuesday, while the Dow and S&P 500 brushed against recent peaks as strong earnings underscored the health of corporate America.

Fanning the market’s rally were reports US president Donald Trump’s tax reform proposals, due to be announced on Wednesday, would include a slashing of the corporate tax rate and lower taxes on offshore earnings stockpiled by US companies overseas.

The threat of a US government shutdown this weekend also receded after Mr Trump backed away from demanding Congress include funding for his planned border wall with Mexico in a spending Bill.

Financials led the Hong Kong stock market higher as fund managers bet on expectations the quality of banks’ balance sheets will likely get better on an improving economic cycle and cheaper valuations.

French election

In currency markets, the euro built on strong gains posted this week after business-friendly centrist Emmanuel Macron won the first round of the French vote on Sunday and opinion polls indicated less support for the Eurosceptic Marine Le Pen.

While that is not expected to sway the European Central Bank into further action at Thursday's meeting, policymakers see scope for sending a small signal in June towards reducing monetary stimulus, according to sources, another factor underpinning the single currency.

“In our view, downside risks to growth have actually decreased with the outcome of the first round of the French election . . . The underlying tone of the press conference should still be positive,” Holger Sandte, a strategist at Nordea markets wrote in a note.

The euro was steady at $1.09480, retaining most of Monday’s 1.3 per cent gain. On Monday, it posted its strongest one-day performance in 10½ months, which lifted the common currency to a 5½-month high.

Growing appetite for risk meant safe-haven assets fell out of favour, with US 10-year treasury yields firming to 2.34 per cent from 2.23 per cent on Friday.

US crude futures slipped after a volatile overnight session following an industry report showing a surprise build-up in inventories. US crude futures were down 0.3 per cent at $49.41 a barrel. – (Reuters)

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