Europe: Earnings, euro fall propel shares higher

[LONDON] Encouraging results and a fall in the euro boosted European stock markets on Thursday, while earnings disappointments weighed on some stocks including Germany's Lufthansa and Kion.

The Stoxx 600 ended the session 0.9 per cent higher as the euro fell to a session low after the European Central Bank (ECB) kept policy unchanged at its latest meeting.

"Taking into account the recent deceleration in growth, still low core inflation, substantial labour market slack in key economies, and the threat of US protectionism, I believe the ECB made the right call," said Ronald Temple, co-head of multi asset investing at Lazard Asset Management.

The boost from the currency and upbeat earnings eclipsed worries over rising bond yields that jolted risky assets earlier in the week.

As investors sifted through the heaviest week of earnings season, JP Morgan equity strategist Mislav Matejka said: "Based on the results so far, the earnings delivery looks encouraging in the US, while the numbers in Europe and Japan are somewhat softer, but still positive."

Bank earnings were a key focus.

Deutsche Bank shares had a choppy session and ended 2 per cent lower after the lender said it would scale back its bond and equities trading in a significant overhaul of its investment bank, after reporting a 79 per cent drop in net profit in the first quarter.

"The strategy potentially resolves the capitalisation concerns of the bank, but profitability remains an issue," KBW analysts said in a note.

Deutsche Bank shares are down nearly 25 per cent year-to-date, the worst-performing of the European banks sector.

Meanwhile Norway's largest bank, DNB, jumped 6.7 per cent after profit beat expectations as a pick-up in activity in the oil sector wiped the bank clean of loan losses.

Among notable gainers, Finnish oil refining firm Neste topped the Stoxx, soaring nearly 17 per cent after reporting first-quarter sales that comfortably topped analysts' estimates.

Industrials were strong overall, with French engine maker Safran rising after results, but Lufthansa falling 5.5 per cent.

The German airline's revenue growth disappointed due to expansion of its Eurowings budget carrier.

Investors are watching the European earnings season keenly for any signs of strain from slowing economic growth after recent business activity and consumer confidence measures faltered.

Analysts have downgraded their expectations for euro zone earnings.

The euro zone Stoxx saw the biggest downward revisions to earnings estimates since July 2016 this week.

Oil majors moved in opposite directions after results.

France's Total rose 1.5 per cent after it reported that record production had lifted profits, while Royal Dutch Shell declined 1 per cent despite reporting a 42 per cent rise in first-quarter profit.

"First-quarter free cash-flow generation was at US$4.4 billion, below our estimates on weaker than expected operating cash flow," wrote Goldman Sachs analysts on Shell.

There were also some big disappointments.

Shares in Philips Lighting, the world's largest lighting maker, fell 13.3 per cent after the firm reported lower than expected first-quarter earnings due to falling sales and margins.

BE Semiconductor Industries sank nearly 17 per cent to the bottom of the Stoxx 600 after its results. Semiconductors across Europe have been under pressure recently as sentiment on the tech sector turns more pessimistic.

REUTERS