Europe: Sliding car stocks drag Europe down as investors hit the brakes

[LONDON] European shares stalled on Wednesday as weak results from the troubled auto sector weighed and investor confidence in a rally that has sent stocks shooting up this year showed signs of fraying.

Exuberance in Chinese shares over hopes for fresh stimulus failed to spill over into European trading where the STOXX 600 dipped from five-month highs, ending just below parity.

"The good news is China is now easing quite aggressively. The less good news is it takes time for credit easing to impact the domestic and global economies," said Nicholas Brooks, head of economic and investment research at Intermediate Capital Group.

"We think Europe will see growth pick up in the latter part of 2019 as China import demand stabilises and recent exceptional domestic factors weighing on Europe growth start to fade."

Auto stocks fell after German bearings maker Schaeffler warned of an "extremely challenging" business environment in 2019 and said it would restructure, sending its shares down 6.2 per cent.

"The midpoint of the new guidance implies 17 per cent consensus earnings (EBIT) downgrades, and the 2020 guidance elimination will likely hurt sentiment," said UBS analysts.

The sector index fell 0.9 per cent as German carmakers Daimler, BMW, and Volkswagen tumbled, dragging the DAX down 0.3 per cent.

Traders said the stocks were also hurt by an article in Handelsblatt saying the European Commission is preparing fines on German carmakers in an ongoing antitrust investigation.

Carmaker shares, facing a potent cocktail of slowing global growth and rising trade tariffs, have been under pressure for months.

French car suppliers Faurecia and Valeo also fell 1.9 to 2.7 per cent while small-cap Swiss autos supplier Autoneum fell 17.2 per cent after reporting a drop in profitability.

Results from the tech sector were more encouraging.

Logitech rose 2.2 per cent to a four-month high after the company said it expects annual sales to increase by mid to high single-digit in the next financial year ending March 2020.

"Delivering on its medium term targets is not fully reflected in shares yet," UBS analysts said.

Dialog Semiconductor jumped 2.2 per cent after the Anglo-German chip designer said revenue would suffer a single-digit percentage drop this year as it reduces its exposure to Apple. This forecast topped a consensus view among analysts for a 9 per cent fall.

Prysmian fell 3.1 per cent after mixed results from the world's largest cable maker and following a Kepler Cheuvreux downgrade of the stock to "hold" from "buy".

The company revised upwards its savings expectations from a US acquisition to offset provisions it has taken on its WesternLink cable connection.

Euro zone banks rose 0.2 per cent on fresh talk that the ECB would go ahead with a new round of ultra-cheap bank loans which could either be announced or hinted at during the central bank's meeting on Thursday.

Italian banks, which used the biggest share of the previous round of cheap central bank loans, outperformed to gain 0.9 per cent.

Credit Agricole fell as much as 2.7 per cent after French newspaper Les Echos said its private banking unit Indosuez was among the banks named in a report about a money laundering network alleged to have channelled billions of euros from Russia.

A Credit Agricole spokeswoman said Indosuez had "fulfilled all its obligations regarding anti-money laundering". Credit Agricole ended off lows, down 0.6 per cent.

Dutch bank ING also tumbled 2.2 per cent in its second day of losses after the report on money laundering.

Elsewhere, British American Tobacco and Imperial Brands rose 5.1 and 1.4 per cent respectively as investors bet the surprise resignation of US Food & Drug Administration Commissioner Scott Gottlieb may call into question the agency's regulation of e-cigarettes.

Overall, after sharp cuts to analysts' forecasts, earnings for MSCI Europe companies are now expected to grow 5.7 per cent in 2019 - down from the 9.5 per cent growth expected four months ago.

REUTERS