Declines in Energy Shares Cap Month of Worry for European Stocks

  • No deal at OPEC meeting spurs concern for November gathering
  • Shire slides amid concern over hemophilia-drug exclusion

European Energy Stocks Fall With Oil

As October drew to a close, a slump in oil added to the list of woes that have held back gains for European stocks.

BP Plc and Royal Dutch Shell Plc fell at least 1.4 percent after an unresolved OPEC accord following weekend talks raised questions on whether the world’s biggest oil producers can implement supply cuts at an official gathering in November. The Stoxx Europe 600 Index fell 0.5 percent, the worst drop in two weeks.

The slump in oil-and-gas shares, among the biggest winners of the month, is only the latest drag on the region’s equities. A tepid earnings season, rising bond yields amid concerns about inflation and speculation about monetary-policy tightening have weighed on the Stoxx 600 after it reached a four-month high in September. The benchmark has traded in a range of about 15 points since then, and is down 1.2 percent in October.

“European stocks aren’t necessarily expensive, but they do need earnings to pick up,” said William Hobbs, head of investment strategy at Barclays Plc’s wealth-management unit in London. “There have been very violent moves in bond markets. You’d think stocks digested that really well, but there’s an internal rotation going on. The yield-curve environment and the rotation help us believe in the sustainability of European equities, but in the short term there could be concerns yields are rising too fast.”

So-called bond proxy sections of the stock market have suffered in October as accelerating inflation sent debt yields surging. Drugmakers, real estate and technology firms led losses in the Stoxx 600, while banks and miners -- linked to economic growth -- clocked the biggest gains. A report on Monday showed euro-area consumer prices rose 0.5 percent this month, matching estimates.

Traders remain bearish on European firms even though, at 14.5 times estimated earnings, they trade at valuations below their two-year average. Investors pulled money from the region’s equity funds for a 38th straight week, the longest streak on record, a Bank of America Corp. report showed. And analysts project a 4.1 percent profit contraction at Stoxx 600 members.

The move in oil took the spotlight on Monday, with energy shares posting their biggest decline in a month. An OPEC accord at the end of September to limit production for the first time in eight years had boosted crude prices in the weeks that followed. A gauge of Stoxx 600 oil-and-gas producers closed at a 14-month high on Oct. 21, before losing momentum.

The decline “is a reflection of the struggles ahead of November OPEC meeting,” said Andreas Nigg, head of equity and commodity strategy at Vontobel Asset Management in Zurich. “This looks to me like some positioning and bargaining ahead of the meeting.”

Among shares active on corporate news:

  • Drugmaker Shire Plc slid 2.8 percent after Express Scripts Holding Co., a U.S. manager of prescription-medicine benefits, said some hemophilia treatments are at risk of being excluded from lists of covered medicines.
  • Hexagon AB slid 9.9 percent after Norwegian authorities said they are investigating the Swedish technology firm’s chief executive officer for insider trading.
  • WPP Plc added 4.1 percent after the world’s largest advertising company posted an increase in quarterly sales. 
  • Sika AG, a maker of adhesives and sealants, jumped 12 percent after a Swiss court backed its bid to block a takeover by Cie de Saint-Gobain.
  • Centamin Plc paced gains in miners, up 1.1 percent, after saying it sees gold output near the upper end of its 2016 forecast. Randgold Resources Ltd. and Anglo American Plc added 2.8 percent or more.
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