Europe: Stoxx 600 hits over one-month high as earnings offset economic gloom

EUROPE’S Stoxx 600 index closed higher for the second straight day on Tuesday after a slew of better-than-expected earnings reports helped offset worries about fast-rising interest rates and a slowing euro zone economy.

The pan-European stock index rose 1.4 per cent, to close at its highest level since Sept 20, with real-estate, technology and financial sectors leading the gains.

Boosting financial stocks, UBS climbed 7.7 per cent after the Swiss bank beat market expectations for quarterly profit due to a rise in new money inflows.

SAP gained 6.5 per cent after the German business software maker reported faster-than-expected revenue growth for the third quarter, while Logitech International jumped 12.5 per cent after the computer peripherals maker reaffirmed its full-year forecast.

Overall, the quarterly updates helped lift sentiment despite lingering worries about a European recession as consumers and businesses buckle under pressure from surging inflation and higher borrowing costs to tame it.

Earnings from tech giants Microsoft Corp, Google-owner Alphabet, and Apple will set the tone on Wall Street this week.

“Our focus is on the forward outlook for Q4 and 2023 EPS, which has now started to fall, even though we believe it still to be at optimistic levels and thus subject to further cuts as companies report,” said Leonardo Pellandini, equity strategist at Julius Baer.

“We reiterate our defensive positioning for the time being given the imminent slowdown in macroeconomic momentum.”

Third quarter earnings are expected to increase 31.3 per cent year-over-year.

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Of the 65 companies in the Stoxx 600 that have reported earnings to date, 55.4 per cent have beat analysts’ profit estimates, as per Refinitiv IBES data. In a typical quarter, 53 per cent top estimates.

While European corporate earnings are expected to grow 31.3 per cent in the third quarter, it is seen up 18.6 per cent in the fourth quarter and just 3 per cent in the first quarter of 2023.

The European Central Bank (ECB) is widely expected to deliver a second straight 75 basis point rate hike this week, but a recent report suggesting the US Federal Reserve might slow its pace of rate hikes has raised hopes of a pivot from the ECB too.

That prompted Euro zone bond yields to fall, boosting the rate-sensitive technology stocks.

Among other stocks, Air Liquide rose 6.7 per cent after the French industrial gases company beat quarterly sales expectations despite a slowdown in European demand.

Adidas dropped 3.2 per cent after the German sportswear maker terminated its partnership with the American rapper and designer Kanye West immediately over antisemitism and hate speech. Separately, Morgan Stanley downgraded the stock to “underweight”. REUTERS