Better Earnings Season Marred as Shire Sends Europe Stocks Down

  • Shell posts better-than-forecast third-quarter earnings
  • Standard Chartered reports worse-than-estimated profit

Stoxx 600 Little Changed

European companies may be heading for their most encouraging earnings season in a year, but disappointing results from heavyweights including Shire Plc and Standard Chartered Plc are hogging the limelight.

About half of the Stoxx Europe 600 Index’s members have released quarterly results, and of those, 62 percent have beaten profit estimates, according to strategists at JPMorgan Chase & Co., marking the best scorecard since the second quarter of 2015. But despite upbeat news from Royal Dutch Shell Plc and China on Tuesday, worse-than-estimated results at Shire and Standard Chartered dragged the equity gauge down 1.1 percent to its lowest level since July 11 at the close of trading.

Since reaching a four-month high in September, stocks have struggled to break higher on concern over monetary-policy tightening, the efficacy of European Central Bank stimulus amid mixed economic data, and the U.S. elections. The Stoxx 600 fell 1.2 percent in October, posting its first back-to-back monthly declines since the start of the year, with a late slide in energy shares and earnings ambiguity exacerbating investor concerns.

“The market is tilted towards pessimism, meaning it takes a lot more for positive surprises to move markets,” said Yogi Dewan, the chief executive officer of Hassium Asset Management in Gerrards Cross, U.K. His firm manages about $1 billion. “Bank shares are particularly sensitive -- they’re going to get hit quite hard if their numbers aren’t good or if their guidance is unclear -- that’s a drag on overall sentiment. Better earnings elsewhere aren’t going to be enough to drive gains when everyone is still obsessed with all the macro uncertainties.”

Shire lost 2.6 percent after reporting third-quarter sales that missed analysts’ estimates and saying administrative costs almost doubled. Standard Chartered slid 5.4 percent -- the most since the Brexit vote -- after profit fell short of estimates as revenue shrank at all four of its divisions. BP Plc dropped 4.5 percent after posting a 49 percent decline in earnings as crude prices fell and refining margins shrank. Shell added 3.8 percent after its adjusted profit beat forecasts. Miners gave up early gains spurred by better-than-expected Chinese manufacturing data.

A measure of volatility in European stocks rose for a seventh day, its longest run of consecutive gains in more than five years. The volume of shares changing hands today was about 13 percent lower than the 30-day average amid holidays in Italy, France, Spain and Portugal.

Earnings remain in focus as equity valuations hold near long-term averages, with more than 70 Stoxx 600 companies scheduled to release results this week. Analysts forecast a profit drop of 4.1 percent for 2016, followed by double-digit growth in each of the next two years. 

Most companies that have reported so far have beaten estimates. While these stocks outperformed the market by 0.6 percent on the day the results were released, those that fell short underperformed by 2 percent -- the most severe reaction to misses in four years, according to Barclays Plc.

Among other stocks moving on corporate news today:

  • Weir Group Plc dropped 2.4 percent as the engineering firm said annual profit will be less than analysts project, even after favorable currency translation effects.  
  • Pandora A/S retreated 5.8 percent after reporting a slowdown in sales at its jewelry stores, offsetting a boost to its full-year profitability target from declining costs for gold and silver.
  • Nokian Renkaat Oyj jumped 8.4 percent after reporting an increase in margins at its passenger-tire business in the third quarter amid signs of stabilization in Russia.
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