European Stocks Fail to Maintain Gains After U.S. Economic Data

  • Energy producers remain higher, jumping 4.4% as a group
  • U.K.’s FTSE 100 climbs, closing at its highest since Aug. 15

European Stocks Close Little Changed

The rally in energy producers wasn’t enough for European equities to maintain their gains after U.S. data stocked concern about the economy as the Federal Reserve contemplates raising interest rates.

The Stoxx Europe 600 Index gained less than 0.1 percent, almost completely erasing its advance in the last hour of trading. A report showed U.S. pending home sales slumped in August, just as Fed Bank of Atlanta President Dennis Lockhart said the central bank is nearing its goals of maximum employment and steady inflation near 2 percent.

Earlier, the the Stoxx 600 rallied as much as 1.1 percent as a surprise OPEC agreement stoked confidence for an earnings recovery at energy companies. Those managed to keep their advances -- Royal Dutch Shell Plc climbed 5.9 percent and Total SA rose 4.2 percent, the most since February, while BP Plc added 4.3 percent.

“It really caught people on the hop -- we weren’t expecting a cut in output at all,” said Derek Mitchell, a manager at Royal London Asset Management. His fund oversees 93.8 billion pounds ($122 billion) and owns shares of Shell and BP. “It sends a message that there’s now a floor under the oil price. A tighter oil market will support earnings and help sustain some of the dividends that were at risk. There’s rightly a great deal of skepticism as to whether this cut will last but for the time being, it’s a very nice thing to wake up to.”

The gains in energy producers came just as their valuations reached about 15 times estimated earnings, the lowest since January relative to the Stoxx 600. While the Stoxx 600 Oil & Gas Index jumped as much as 31 percent since January, the rebound lost steam in recent weeks as the commodity stalled. Yet analysts kept tempering their estimates for profit declines. That lowered valuations, which have now made the firms attractive, Mitchell said.

As of last week, analysts saw a 24 percent contraction in earnings at Stoxx 600 energy producers for the year, followed by increases of more than 16 percent in each of the next three. Back in April, they projected a 37 percent slump in 2016. Companies including Total, the biggest energy firm in the Stoxx 600, posted quarterly profits that beat analyst estimates in July. Dividends for the producers had also come under pressure with the slump in crude.

Still, the Stoxx 600 is set for a third weekly decline in four and remains below its pre-Brexit level. This month, the gauge was hurt by drops in lenders as concern grew about Deutsche Bank AG’s capital buffers. That’s even as economic data began beating forecasts again. On Thursday, a report showed economic confidence in the euro area unexpectedly improved in September.

Britain’s FTSE 100 Index rallied 1 percent, closing at its highest level since the Aug. 15 high. The rally in commodity companies boosted the measure, which was the biggest gainer among major western-European markets. France’s CAC 40 Index gained 0.3 percent, while Germany’s DAX Index fell as much.

Banks, the biggest losers this year, were mixed. Credit Suisse Group AG added 1.8 percent after people familiar with the matter said the bank could settle a U.S. investigation into its mortgage-bond dealings within weeks. Bankia SA gained 2 percent as the Spanish government is considering merging the lender with Banco Mare Nostrum SA. Deutsche Bank rose 1 percent, while Commerzbank AG fell 3.1 percent, reversing earlier gains, after saying it will suspend dividends and cut 9,600 jobs.

The jump in oil weighed on airlines. Deutsche Lufthansa AG and Ryanair Holdings Plc fell more than 2 percent.

Among other decliners, Capita Plc, a services provider to U.K. government agencies, sank 27 percent after cutting its annual sales forecast and saying profit will be lower than analyst estimates it compiled. Peer Babcock International Group Plc dropped 3.8 percent. Merlin Entertainments Plc lost 5.9 percent after the operator of tourist attractions including the London Eye noted difficult conditions in key markets. Novo Nordisk A/S lost 3.5 percent after saying it will trim about 2 percent of its workforce.

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