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Europe: Shares in correction mode as mixed earnings flow in

[LONDON] European shares fell to a near four-week low on Wednesday, with a mixed batch of company results sparking profit-taking a day before the European Central Bank decides on monetary policy.

Pharma heavyweight GlaxoSmithKline (GSK) was a big faller as comments on possible consumer health acquisitions sparked concerns over its dividend, offsetting strong results.

"Investors remain focused on the safety of the dividend,"said Leerink analyst Seamus Fernandez.

GSK shares fell 5.5 per cent, making the healthcare index the second-biggest sectoral loser and helping drag the pan-European Stoxx 600 benchmark down 0.6 per cent to 387.13, its lowest close since late September.

The market fall came despite continued strength in economic data, among the key drivers for this year's stocks rally along with solid corporate earnings growth.

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Some fund managers expect the stock market to correct even though the global macroeconomic backdrop is positive.

On Wednesday a survey showed German business confidence surprisingly rose to a record high in October, while Britain's economy picked up speed unexpectedly in the third quarter.

"A correction is likely, but not a change of trend," Andrea Cuturi, chief investment officer at Anthilia Capital in Milan, said.

"Fundamentals continue to be supportive," Mr Cuturi said."However we believe that in the next two months the chances of a correction are quite high. We're entering a period of the year when investors tend to protect their gains more and there are plenty of potential catalysts to trigger profit-taking."

His firm cut exposure to euro zone stocks to neutral this month, amid caution over changes at the Federal Reserve and decisions over the future of the ECB's bond buying programme, as well as the slowing pace of earnings growth.


On Wednesday, earning updates were mixed.

Among luxury companies, Kering rallied 8.8 per cent after yet another forecast-beating quarter from its Gucci brand, boosting luxury peer LVMH, up 1.3 per cent.

"A good quarter for the industry, but still very polarised, with Gucci clearly leading the momentum at five times the sector growth," said JP Morgan analysts in a note.

"Gucci remains the 'it' brand," wrote Citi analysts.

Biotech firm Novozymes rose 3 per cent after it raised its full-year outlook and reported sales and earnings that beat forecasts.

Ballpoint pens and razor maker BIC however sank 8.3 per cent, hitting a four-year low after nine-month sales came in under consensus.

The shares had suffered sharp losses after a cut to sales expectations in late September.

Industrial stocks Wartsila and Alfa Laval fell 4.8 per cent and 0.6 per cent respectively after both missed earnings expectations, with Alfa Laval reporting lower order bookings and Wartsila pointing to a challenging marine market.

Overall results have been somewhat underwhelming so far, with Thomson Reuters data showing fewer companies beating analyst estimates than in the average quarter.

Overall earnings for the Stoxx 600 are set to grow 3.4 per cent this quarter compared with the same period in 2016, Thomson Reuters data showed. That growth disappears when energy stocks are stripped out.

"To date, earnings have delivered a modest beat, but sales have seen a small miss," Morgan Stanley analysts led by Matthew Garman wrote in a note. "Price reaction to results has been weak for both beats and misses."


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