European shares rise as earnings offset Middle East worries

EUROPEAN shares gained on Thursday (Jul 30), buoyed by strong earnings in cyclical sectors such as financials and industrials, while investors assessed the possible impact from escalating tensions in the Middle East and from uncertainty over US interest rates.

The pan-European Stoxx 600 rose 0.8 per cent at close to 649.95, briefly hitting its highest level since Jul 7.

Banks were among the biggest boosts to the index, up 2.6 per cent, largely lifted by Spanish lender BBVA’s about 5 per cent gain after its second-quarter net profit rose more than 11 per cent on an annual basis.

Spain’s bank-heavy index gained 1.8 per cent, mostly among regional peers.

“We’ve seen a really strong performance from high-growth sectors in Europe, like the banks and the financial sector. They’re thriving with massive digital investments which are now paying off,” said Kathleen Brooks, research director at XTB.

Construction and materials stocks gained 2.2 per cent. Bouygues shares rose 7.1 per cent after the French conglomerate reported a half-year core profit well ahead of market expectations.

“Banks, industrials, the energy sector and part of the consumer discretionary, that has been very beaten down, have come up with numbers to make investors think that probably the bottom has passed and it’s time to rethink the exposure,” said Jacobo Ortega, chief investment officer for Europe at Santander Asset Management.

Ortega added that if earnings growth could continue to broaden across sectors, investors will likely keep increasing their exposure to Europe.

Industrial stocks were up 1.8 per cent, helped by a 10 per cent jump in Schneider Electric after the group raised its full-year outlook and a near 11 per cent surge in Mondi after the paper and packaging group’s first-half results.

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Gains were capped by a 2.8 per cent decline in Airbus after its second-quarter results, and a near 21 per cent slump in Rentokil, which logged its worst one-day drop since 2008 after the pest-control firm flagged weakness in its North America business.

European blue-chip companies’ second-quarter profit growth is now forecast at 20.8 per cent, driven largely by energy firms, LSEG I/B/E/S data showed.

Energy stocks were up 1.3 per cent, with Brent crude futures topping US$90 a barrel after the US carried out more strikes in Iran, further intensifying a five-month-old war.

Against that backdrop, a divided Federal Reserve left interest rates unchanged even as chief Kevin Warsh pledged to bring inflation down, leaving markets confused about just what he was prepared to do.

Among others, Adidas tumbled 11.5 per cent, despite raising its annual sales forecast.

L’Oreal rose 2.7 per cent after the Paris-based cosmetics group reported better-than-expected second-quarter sales, while Stellantis lost 4.3 per cent after operating income missed analysts’ expectations in the second quarter.

Earnings from Apple and Amazon.com after US markets close will be scrutinised as Microsoft and Meta offered a mixed picture of AI capex plans. REUTERS