Europe: Shares finish slightly lower as Next slumps

[LONDON] European shares edged down from a one-year high on Wednesday, with retailers in focus after standout faller Next cut its profit guidance and cautioned on future trade.

The pan-European Stoxx 600 closed 0.1 per cent lower, pulling back from its highest level since December 2015, reached in the previous session.

The index was dragged down by a 14.4 per cent slump in shares of UK fashion retailer Next, making it the biggest per centage faller on the Stoxx 600. The stock has lost nearly 40 per cent over the past year.

Next's warning put pressure on other high street retailers with UK exposure. Marks & Spencer slumped 6.1 per cent and Primark-owner Associated British Foods fell 3.7 per cent. The Stoxx 600 retail index was down 1 per cent, the biggest sectoral faller.

"We are already seeing signs of inflation picking up as import prices rise in the wake of sterling's fall," said Stephen Macklow-Smith, head of European equity strategy at JPMorgan Asset Management. "Retailers are likely to respond with price competition, which is likely to put pressure on their margins ... The only question is how much of this is already in the price, given that retailers have underperformed since late 2015. My sense is that further pressure on real incomes is not yet fully discounted."

The exception was B&M. The value retailer was the top Stoxx 600 riser, up 9.5 per cent after reporting record Christmas trading.

The Stoxx 600 is up nearly 12 per cent in the seven weeks since lows hit following the US presidential election, as investors bet that global growth and inflation will rise under President-elect Donald Trump.

Euro zone services PMIs provided further evidence of economic strength, as businesses ended 2016 by ramping up activity at the fastest pace for five-and-a-half years.

In financials, Credit Suisse rose 3.5 per cent following a positive sector note by Barclays. European banks rose 0.6 per cent, the top sectoral riser. "The calendar of political events remains full, and economic variables open to a wide range of outcomes, whose ebbs and flows should stimulate trading further in 2017, giving upside to investment bank revenues," Barclays analysts said in a note.

UK-listed housebuilders were also among top sectoral gainers, after Deutsche Bank said there was close to 30 per cent upside in the sector.

Shares in Barratt Developments, Taylor Wimpey and Persimmon rose between 2.8 per cent and 4.1 per cent, also helped by UK mortgage approvals in November reaching an eight-month high, indicating a post-Brexit recovery.

French pharma firm Ipsen hit a record high after Natixis upgraded the stock to "buy" from "hold". It closed 3 per cent higher.

REUTERS