Europe: Downbeat Swedish earnings, oil slide hurt European shares

[BENGALURU] European stock markets lost ground on Wednesday after three straight days of gains, with Swedish share prices hit by a slew of poor quarterly results and oil majors across the region reeling from this week's slide in oil prices.

The pan-European STOXX 600 ended down 0.4 per cent, with Stockholm-listed shares suffering their biggest percentage loss since May on falls for Ericsson, Swedbank and engineering group Alfa Laval.

European banks underperformed broadly as quarterly results from Wall Street lenders raised questions about the sector's profitability going forward if major central banks proceed with more cuts in interest rates to fight a global slowdown.

"The fear is that if they (net interest margins) are softening, what is it going to look like if we do get these interest rate cuts," said David Madden, market analyst at CMC Markets in Britain.

"The perception is that banks are going to be under pressure and that is going to spread out in the sector as a whole."

Traders expect the US Federal Reserve to embark on a new cycle of monetary easing next week, while the European Central Bank is also expected to keep the door open to more stimulus measures as trade disputes take a toll on growth.

After a bullish six weeks driven by expectations of a series of those kinds of moves, however, doubts have begun to emerge about whether the US economy, for example, may really need as many as the three quarter-point rate cuts markets have been pricing in.

At the same time, investors remain deeply concerned about President Donald Trump's trade wars and their impact on growth. Mr Trump said on Tuesday that a deal with China was a long way off and that he could still impose tariffs on an additional US$325 billion worth of Chinese goods if needed.

"There is a small bit of fear in relation to Mr Trump's comments. It showed that the trade deal was unresolved and encouraged profit taking," said Mr Madden.

The biggest percentage loser among European sectors was the oil and gas sector, down 2 per cent, as energy heavyweights BP and Total were hit by the slide in the oil price to a one-week low on Tuesday.

Swiss stocks were a bright spot with shares in Swatch jumping 6 per cent, its strongest performance in more than six years after the watchmaker issued a positive outlook for its biggest markets.

Dutch chipmaker ASML also rose 5.2 per cent after it reported better-than-expected quarterly results and kept to its forecast of solid growth for the rest of the year.

The banking sector fell 1.5 per cent, led by Swedish banks. Handelsbanken fell on poor results, while Swedbank slipped after cutting its shareholder pay-out policy.

Ericsson fell about 12 per cent, the most on the STOXX 600, after warning costs related to winning new contracts for its network business would hit profit margins later this year.

REUTERS