Earnings help European shares regain after stress-test scare

European shares nudged higher today, supported by a raft of positive corporate earnings and mild inflation data from the United States which may encourage the US Federal Reserve to keep interest rates lower for longer.

However, the session was volatile, with euro zone banks under pressure early on after Spain’s EFE news agency reported that several European lenders might fail EU bank stress tests.

The pan-European FTSEurofirst 300 closed up 0.7 per cent at 1,308.73, regaining the ground lost after the stress-test report came out.

US consumer prices rose marginally in September, painting a weak inflation picture that should give the Federal Reserve ample room to keep interest rates low for a while longer.

Also on the upside, GlaxSmithKline rose 2.6 per cent after beating earnings expectations and saying it expected a vaccine against Ebola to be ready later this year.

“Revenues are a miss but a potential Ebola-tackling drug could help to reverse that disappointment if it proves to be successful. The pipeline still looks attractive,” IG market analyst Alastair McCaig said.

Measurement technology and software group Hexagon surged 10.3 per cent after posting third-quarter pretax profit above expectations, saying like-for-like sales growth had strengthened from the previous quarter.

So far in Europe’s earnings season, 9 per cent of STOXX 600 companies have reported results, of which 65 percent have met or beaten profit forecasts, according to data from Thomson Reuters StarMine.

However, British American Tobacco fell 2.6 per cent, taking the most points off the FTSEurofirst 300, after reporting an accelerated decline in the number of cigarettes sold, citing economic pressures on smokers worldwide to rein in spending.

Heineken also fell after results, dropping 1 per cent as the world's No. 3 brewer reported lower-than-expected beer sales in the third quarter.

Euro zone banks recovered to trade slightly higher despite falling more than 1 percent after EFE’s report that at least 11 banks from six European countries are set to fail the region-wide financial health check this weekend, citing unidentified sources.

Spain's economy minister said he was confident Spanish lenders would do well in the European Central Bank's checks, and Austria's Erste Bank denied it was among those that had failed the test.

Erste Bank closed down 0.9 per cent, having traded as much as 2.3 per cent lower.

The ECB sought to cool speculation. “Any inferences drawn as to the final outcome of the exercise would be highly speculative until the results are final on 26 October,” said a spokesman.

The issue “does underline the fragility of the European economy because if you don’t have secure, robust banking institutions in place, (the economy) just won’t be able to grow,” Redmayne-Bentley investment manager David Battersby said.

Reuters