European shares mixed in thin trade

Mon, Jul 16, 2012, 01:00

European shares were mixed in thin, jittery summer trading today, as a gloomy start to the second quarter earnings season kept investors on edge while prospects of global stimulus measures helped cap losses.

UK software maker Sage said conditions in European markets have become tougher and sales at clothing retailer Hennes & Mauritz grew more slowly than in June.

Even Swedish banking group SEB, whose shares rose on forecast-beating profits, said Europe's austerity measures and sovereign debt woes could start to infiltrate its traditionally robust core Nordic markets.

"The equity market will ultimately remain burdened by two factors: first, uncertainty and risk regarding the development of the euro zone debt crisis and second, ongoing negative earnings revisions, which we do not see ending anytime soon," said Tammo Greetfeld, equity strategist at Unicredit.

He said these factors could lead the EuroStoxx 50 to test its September 2011 lows in the current quarter at around 1,936 points – some 14 per cent below current levels.

At 11.44am, the benchmark index of euro zone blue chips traded 0.2 per cent lower at 2,253.81 points.

The broader FTSEurofirst 300 held up better, reversing earlier losses to trade 0.1 per cent higher at 1,043.88 points thanks to gains in defensive drug stocks.

By mid-session, volumes on the index were at just 20 per cent of the 90-day daily average, contributing to choppy trading.

Investors who have not yet departed for summer holidays were reluctant to place big bets ahead of key events this week, including testimony by Federal Reserve Chairman Ben Bernanke, which will be scanned for any signs that the US central bank is getting closer to unveiling fresh stimulus.

"The market is not going anywhere really until we've heard Mr Bernanke's testimony," said Zeg Choudhry, head of equities trading at Northland Capital Partners.

A weak number from US June retail sales at 1.30am could help galvanise the Fed into action, strategists said.

Underlining investor unease, data from EPFR released on Friday showed modest outflows from European equity funds for the sixth time in the past eight weeks - even as the market rose around 5.3 per cent over that two-month period.

Nokia fell 2.3 per cent, with data from Markit showing short interest in the phone manufacturer has surged to an all-time high ahead of its results due on Thursday.

News that the Finnish firm has slashed the US price of its flagship smartphone Lumia 900 in half, in an effort to stanch losses in market share to rivals such as Apple, further fuelled concerns.

With the stock already at 16-year lows, strategists at Exane forecast that Nokia could be expelled from the EuroStoxx 50 in the September review, estimating that this could prompt index tracker funds to dump some 120 million shares.

Investors were also wary about earnings from miners, with several banks recently downgrading their forecasts to reflect the slump in metals prices.

Derivatives strategists at BNP Paribas highlighted materials as the sector to avoid over the results season in Europe, based on investor positioning, earnings momentum, margin strength, recent share price performance and geographical exposure.