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Oil, financials get European shares off to firm start in August


[LONDON] European shares rose on Tuesday, looking to recover after two straight months of losses, with corporate earnings reports spurring brisk trading ahead of a what is typically a sleepy summer period for markets.

The pan-European Stoxx 600 index, nursing two straight months of losses, rose 0.6 per cent. Blue chips closed 0.9 per cent higher, their best one-day gains in three weeks.

Germany's DAX advanced 1.1 per cent while Britain's commodities-heavy FTSE 100 gained 0.7 per cent as oil stocks rose.

Earnings updates dominated the action, with oil heavyweight BP rising 2.8 per cent and boosting the oil & gas sector after beating forecasts as new projects supported production.

Market voices on:

"BP has covered the cash component of the dividend with free cash flow for the second straight quarter and the Upstream business is performing well," analysts at Jefferies said in a note.

"Valuation is not challenging, but the company's ability to de-lever the balance sheet remains a concern."

The European second-quarter earnings season is nearing the halfway mark and so far 60 per cent of MSCI Europe firms have met or beaten analysts' expectations, according to Thomson Reuters data.

Earnings per share growth in Europe was tracking at about 13 per cent, including a significant boost from energy firms, according to the latest data from JPMorgan.

"You have seen some signs of (the) green shoots of recovery within the European economy and that, of course, is good for companies," Laith Khalaf, senior analyst at Hargreaves Lansdown, said.

Morgan Stanley analysts said the euro's surge this year could weigh on European corporate profits, however, joining the chorus of big brokers warning the currency could dent earnings growth.

British companies were the top gainers, with aerospace and defence firm Rolls-Royce shooting up 11.6 per cent, its best day in a year, after beating expectations with a rise in first-half profit thanks to a step-up in production.

It was joined by testing firm Intertek Group, insurer Direct Line and Dutch chemicals company DSM , which all gained between 5.8 per cent to 9 per cent on the back of well-received results.

Lender CYBG was the top-gaining bank, rocketing 9.3 per cent on strong third-quarter results. Financials were the biggest contributors to gains on the Stoxx. Morgan Stanley had pointed to the sector as one of the least vulnerable to the stronger euro, due to its low overseas exposure.

A late faller was motor insurance company AA which plummeted 12.8 per cent after the firm fired its executive chairman and lowered its full-year forecasts.

While moves among fallers were otherwise fairly muted, precious metals miner Fresnillo was the worst-performing in the basic resources sector, dropping 2.3 per cent after its first-half update.