Europe: Stocks slides on Ericsson slump, souring bank mood

[LONDON] European shares fell on Tuesday after disappointing Ericsson and Lufthansa earnings, while scaled-back expectations of monetary tightening by major central banks dented financial stocks.

The pan-European Stoxx 600 fell by more than one per cent, snapping a four-day winning streak, with European banks down by 1.6 per cent and lower bond trading revenue at Goldman Sachs adding to the selling pressure.

Barclays and Deutsche Bank, which are also major players in the bond market, were top fallers on their respective indexes after the Goldman results.

Although euro zone banks are the most favoured sector along with tech among global investors, according to the latest Bank of America Merrill Lynch (BAML) survey of fund managers, comments from Federal Reserve and European Central Bank policymakers have triggered profit-taking in recent weeks.

The comments point to a slower rate of tightening on both sides of the Atlantic than many investors were expecting.

"The persistent overweight in Eurozone vs US equities could be more bad news for European investors," strategists at BAML said, as that could leave them more vulnerable.

Elsewhere, Ericsson fell by nearly 16 per cent after cutting its forecast for the mobile infrastructure market and reporting a wider than expected loss, a further blow to a company that is undertaking cost cuts.

Nokia fell 3.3 per cent to the bottom of the CAC 40 as the Finnish mobile equipment maker's stock suffered too.

Zalando weighed on the retail index with its shares down 8.3 per cent after reporting slowing sales growth. Europe's biggest online-only fashion retailer said capacity issues at new warehouses had held it back.

The broader euro zone earnings picture is expected to weaken slightly in the third quarter, with analysts expecting a stronger currency to weighing on the bloc's large exporters.

"Historically euro weakness has provided a driver for earnings beats and with that removed, expectations may be more difficult to surpass," Edward Park, investment director at Brooks Macdonald, said.

German airline Lufthansa fell 1.2 per cent from 10-year highs, the worst DAX performer, as cautious second-half comments overshadowed a profit forecast hike.

Lufthansa's shares had gained nearly 70 per cent this year to yesterday's close, among the best performing stocks in Europe.

Norwegian fertiliser firm Yara fell 4 per cent after quarterly earnings were dented by a margin squeeze.

"We believe this has been Yara's darkest quarter and see an improving trend with urea prices ticking up in the US and Egypt recently," Liberum analysts said.

Among shares boosting the index, British spread-betting firm IG Group soared more than 16 per cent, leading the gainers after beating analysts' profit estimates.

Property developer British Land jumped 3.1 per cent and was among the top performers on the Stoxx 600 after announcing a £300 million (S$535 million) share buyback.

Analysts at Morgan Stanley last week predicted European share buybacks would accelerate as corporates react to a better economic growth and solid balance sheets.

REUTERS