Europe: Shares back in the red for October on weak results

[LONDON] Weak corporate results weighed on European shares on Friday, while choppy trading in banking shares took away some of the sector's recent gains.

Earnings disappointments from the likes of Novo Nordisk soured the mood, with the stock down 15 per cent, the worst performance across the Stoxx 600 on the day.

Investors have shown little tolerance for earnings disappointments in recent weeks, with shares of firms missing estimates or warning on profits getting punished severely.

Concerns over the outlook for regional companies have led to a record 38 straight weeks of outflows from European equity funds, the latest data from Bank of America Merrill Lynch and fund tracker EPFR showed.

Banks, among the most beaten down sectors in Europe this year, have offered some support to regional markets this week following a strong set of results from bellwethers which included a surprise profit at Deutsche Bank.

Financials are the best performing sector in Europe this month and are no longer the year's worst performers having overtaken telecoms during the past week's rally.

BNP rose 0.9 per cent after the French bank said it was planning more cost savings to offset the squeeze on revenue from low interest rates, and may consider raising the proportion of earnings it pays out in dividends.

"Bank have been doing well on positive earnings, and on the fact that higher bond yields, and especially a steeper yield curve, are helpful for the sector," said Philippe Gijsels, head of research at BNP Paribas Fortis.

"If these trends continue, the banking sector should continue to outperform," BNP's Mr Gijsels said.

However, euro zone government bond yields seesawed on Friday as investors grappled with various economic data and what they may spell for inflation expectations and the future direction of central bank policy.

In a sign that longer-term concerns about the sector remain, shares of RBS, up as much as 3.5 per cent at the open, reversed course to end down 1.2 per cent after analysts raised doubts about the sustainability of its profits.

European banks are still down 16 per cent this year.

Elsewhere, shares in digital security firm Gemalto fell 7 per cent after a worse-than-expected outlook for 2017, while Spanish sausage case maker Viscofan's shares dropped 3.3 per cent following lower profits.

Satellite firm Eutelsat rose 7.3 per cent after results that showed a steady start to the year.

Overall, third quarter earnings for Stoxx 600 companies are expected to contract 9.9 per cent, according to data from Thomson Reuters I/B/E/S.

REUTERS