European stock rally ends amid weak results, trade pessimism

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange. — Reuters pic
Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange. — Reuters pic

LONDON, Jan 10 ― tumbled today as optimism over US- trade talks faded and a slew of weak earnings reports hit auto and retailer stocks.

The trade-sensitive DAX was down 0.4 per cent by 0950 GMT, while the pan-European STOXX 600 lost 0.3 per cent and Britain’s FTSE 100 fell 0.2 per cent.

The falls snapped a two-day rally that had taken European stocks to three-week highs.

China’s commerce ministry said trade talks made progress on “structural issues” such as forced technology transfers and intellectual property rights, but investors were not convinced.

“Overnight the Commerce Ministry said talks were ‘extensive … deep … detailed’, but other reports suggest the talks got bogged down when issues cut across national security and/or subsidies to state companies,” wrote Chris Bailey, European strategist at Raymond James.

Corporate results, which were poor across the board, offered scant comfort.

Autos were the worst-performing sector, down 1.1 per cent. Defensive real estate, utilities, and telecoms sectors gained as investors turned to stocks with high dividend payouts and stable earnings.

German lighting company Osram fell 8 per cent, the biggest drop on the STOXX, after its CEO warned the final quarter of 2018 was weaker than expected because auto demand had slowed.

Auto weakness also affected car parts makers Faurecia and Valeo, which lost 4.7 and 3.4 per cent, and tyre maker Continental, down 2.9 per cent.

Continental and Faurecia were doubly hit when downgraded both stocks, citing a slowdown in car .

Italian carmaker Fiat Chrysler fell 1.3 per cent after sources said it would pay more than US$700 million (RM2.86 billion) to resolve lawsuits by the US Justice Department over claims it used illegal software to tweak diesel-vehicle emissions.

Outside large caps, French consumer electronics retailer Fnac Darty fell 4.4 per cent. It warned “yellow vests” protests in France would hit its sales figures.

Scout24 lost 4.6 per cent after DealReporter said the online listings firm’s talks over a potential buyout have stalled.

In the UK, updates from retailers dominated. Most confirmed they’d had a bad Christmas.

Cycling and car parts retailer Halfords sank 19 per cent to the bottom of the FTSE 250 after a profit warning.

Kering, which owns Gucci, was cut to “neutral” from “buy” at UBS, driving the stock down 3.1 per cent. Luxury stocks have suffered from mounting signs of slower growth in China.

A difficult few months for have driven stock valuations down to what some investors consider attractive, despite the risks.

“After a weeks-long roller coaster for global equities, valuations have de-rated in line with past bear markets, and sentiment has taken a hit,” wrote Goldman Sachs analysts.

“With equities already pricing a very negative outlook, we think this points to a risk rally ― especially if holds up as we expect.”

Some European stocks were boosted by broker notes: French real estate firm Icade rose 3.6 per cent after Kepler Cheuvreux upgraded it to “buy”, and Eutelsat climbed 3.9 per cent after Morgan Stanley raised it to “overweight”. ― Reuters

Source: The Malay Mail Online

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