Europe: Stoxx 600 marks third month of gains on earnings, recovery hopes

[BENGALURU] European stocks ended lower on Friday after dismal GDP data, but marked a third straight month of gains on strong corporate earnings and optimism about an economic recovery from the Covid-19 pandemic.

The pan-regional Stoxx 600 index fell 0.3 per cent, hovering below its all-time high, and ending the month 1.8 per cent higher.

Data showed the euro zone economy dipped into a second technical recession after a smaller than expected contraction in the first quarter, but is now set for recovery as pandemic curbs are lifted amid accelerating vaccination campaigns.

The German economy contracted by a greater-than-expected 1.7 per cent, hit by renewed lockdowns, while the French economy grew more than expected.

But strong earnings showed companies in the euro zone were well on their way to recover from the impact of the pandemic.

AstraZeneca jumped 4.3 per cent as the British drugmaker posted better-than-expected results and forecast second half growth.

Swedish Match rose 0.7 per cent after the tobacco group reported a much higher first-quarter operating profit than expected, helped by growth in its Smokefree product segment. UK peers British American Tobacco and Imperial Brands rose more than 2 per cent each.

Broadly, European earnings have come in much stronger than expected, with a higher than usual 71 per cent of companies beating profit expectations in the first quarter, according to Refinitiv IBES data. A third of Stoxx 600 companies have published results so far.

"Expectations are high, companies are beating even these elevated expectations, and yet the market is responding with caution," Lewis Grant, portfolio manager at Federated Hermes, wrote in a note.

"At current valuations, and with much pandemic related uncertainty remaining, many investors are more concerned about downside than upside." Strong earnings from British firms helped the European retailers sector outpace its peers in April with a 6.7 per cent bounce, while automobile stocks lagged as a global semiconductor shortage hurt production.

Banking stocks came under pressure on Friday as euro zone bond yields eased from their highest level since January 2020. But the sector raced past its peers this week with a near 6 per cent gain, driven by a swathe of strong earnings.

Barclays tumbled 7 per cent despite reporting a quarterly profit that more than doubled, while France's BNP Paribas slipped 0.8 per cent on higher costs.

Spain's Banco Sabadell jumped 8.7 per cent to the top of the Stoxx 600 after its quarterly profit beat market expectations, helped by strength in its British unit TSB.

REUTERS