Europe: Shares rise on earnings optimism, banks weigh

EUROPEAN shares reversed early declines to gain on Tuesday as robust earnings from the region and the US outweighed concerns about downbeat economic data in the euro zone, while bank shares underperformed.

The pan-European Stoxx 600 index ended 0.4 per cent higher, led my miners as metal prices ticked higher.

US stocks rose as a sell-off in US Treasuries eased, while upbeat corporate forecasts boosted optimism about corporate America’s health in the face of a slowing economy and higher inflation.

“The outlook for earnings in the US, with some of the tech names reporting, that optimism probably drove a few things higher (in Europe),” said Michael Field, European equity strategist at Morningstar.

Lenders were however a drag, down 1.0 per cent as Barclays fell 6.5 per cent after the British lender hinted at major cost cutting later this year and warned competition for savers’ money was eating into its margins.

Adding to the sector’s woes, Spanish bank stocks fell on uncertainty over a potential profit hit after calls to boost a windfall tax under a coalition government deal between Spain’s leftist platform Sumar and the Socialist Party.

The news weighed on Spain’s benchmark IBEX index, down 0.2 per cent and a laggard among regional markets.

Meanwhile, data showed the euro zone Composite Purchasing Managers’ Index (PMI) fell to a near three-year low in October, while business activity in Germany contracted for a fourth straight month, spurring concerns about a recession.

“We’re seeing the impact of increased borrowing costs in the fact that business activity in Germany has contracted again, so (there’s) a real expectation that a recession is well underway, certainly in that part of the euro zone,” said Danni Hewson, head of financial analysis at AJ Bell.

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US: Stocks bounce on earnings, retreat in bond yields

While investors are expecting global central banks to refrain from raising interest rates further, they are awaiting key US economic growth data later in the week to gauge how long the Federal Reserve could hold rates.

Among earnings, Hermes rose 2.8 per cent as the Birkin bag maker beat third-quarter sales estimates, defying a slowdown in the broader luxury sector.

Puma shares rose 7.6 per cent after the German sportswear brand stood by its full-year profit forecast despite a drop in third-quarter earnings.

The personal and household goods sector including both those stocks added 1.2 per cent.

Logitech International jumped 10.2 per cent to the top of Stoxx 600 after lifting its full-year guidance. IT services firm Softcat slumped 11.9 per cent on a decrease in its full-year revenue. REUTERS