Markets: Bank shares fall before stress-test results

European stocks dropped as investors assessed a slew of earnings reports and banks fell before Friday’s stress-test results.

On one of the busiest day for earnings updates this season, with more than 70 companies reporting across Europe, the benchmark Stoxx Europe 600 Index lost 0.9 per cent at the close. Banks posted the biggest declines among groups, before regulators publish their latest health check on the industry.

DUBLIN

The Iseq index lost 0.2 per cent to 5,804.47 points.

Smurfit Kappa was among the weakest stocks, falling 3.9 per cent to €20.66, as analysts shaved their earnings forecasts for the group on the back of news on Thursday that some of its input costs had risen at a faster pace than expected in the second quarter.

Dalata Hotel Group was also on offer, falling 3.8 per cent to €3.80. The company has put its UK expansion plans on hold following Brexit.

"While we had not factored in additional UK hotels for Dalata into our forecasts, there was an expectation that management would have announced at least one new UK hotel project in 2016," analysts at Investec in Dublin said in a note.

Bucking the trend, Ryanair added 2.5 per cent to €11.90, as analysts continued to cheer the airline's reiteration of its full-year earnings guidance earlier this week.

FBD was also in demand, rising 1 per cent to €6.20 on the back of a relatively positive note from stockbroker Davy ahead of the insurer's earnings report next month.

LONDON

Britain's top share index dipped on Thursday after hitting a one-year high in the previous session, with Lloyds, Smith & Nephew and Royal Dutch Shell falling after poorly received trading updates.

The blue-chip FTSE 100 index was down 0.4 per cent at 6,721.06 points at its close.

The FTSE 100, whose international companies are less exposed to any weakness in the domestic economy arising from Brexit, is up 6 per cent since the Brexit vote, while the domestically focused FTSE 250 mid-cap index closed 0.6 per cent below its pre-Brexit level.

The biggest decliner was Lloyds Banking Group, which dropped 5.8 per cent after saying that capital generation could be lower as it steps up its cost-cutting plans, with investors citing concerns about its ability to maintain its dividend.

Shares in Smith & Nephew fell 5.6 per cent after Europe's biggest maker of artificial knees and hips said it was continuing to struggle with weak demand for its products in China.

Royal Dutch Shell fell 2.9 per cent after reporting a fall of more than 70 per cent in quarterly profit, far worse than analyst estimates.

Engineering firm Rolls-Royce surged 13.5 per cent after reaffirming profit would improve in the second half of the year. It also said its turnaround plan would deliver cost cuts at the top end of a guided range.

EUROPE

Spanish phone giant Telefonica declined 4.5 per cent after sliding currencies in Latin America dragged on earnings, while sports gear manufacturer Adidas gained 2.5 per cent in Frankfurt as it raised annual forecasts for revenue and profit.

Logitech International rallied 14 per cent after the maker of computer mice reported quarterly earnings that topped analyst estimates and boosted its 2017 estimates

Equity strategists at Credit Suisse said that many investors remained pessimistic about European equities.

The bad debts of Italian banks remain a cause of concern, and the Credit Suisse strategists said Brexit had reawakened fears among US clients over the euro zone, with valuations at levels last seen during the Greek economic crisis of 2011.

“Outflows are close to record highs, valuations are back to Greek crisis lows on price/earnings relatives, yet earnings and economic momentum are showing signs of relative stability,” they wrote.

WALL STREET

The S&P 500 index and the Dow edged lower in mid-afternoon trading on Thursday as investors fretted about weak economic data and disappointing earnings from Ford.

The carmaker reported weak China sales and declared that the US auto industry's long recovery was at an end, triggering a 9.6 per cent fall in its shares. Ford's dismal forecast rattled the car market, with shares of General Motors falling 4 per cent and Fiat Chrysler 6 per cent.

A report by the US labour department showed the number of people claiming unemployment benefits rose more than expected to 266,000 for the week ended July 22nd.

Energy shares took a hit after oil prices fell 2 per cent. Exxon and Chevron dropped more than 1 per cent. (Additional reporting: Bloomberg, Reuters)