European shares make small gains

European shares edged higher yesterday after better-than-expected US economic growth figures helped outweigh the impact on investor sentiment of yet more gloomy corporate outlooks.

The FTSEurofirst 300 closed up 0.1 per cent at 1,097.35, trimming its losses for the week to 1.3 per cent, after a choppy session that had initially been weighed by fresh concerns over the outlook for regional corporates.

Ericsson, Renault, Saint Gobain and Publicis were among those reporting weak numbers or cutting outlooks in Europe, adding to caution about the health of corporates from disappointing earnings from global giants Apple and Amazon overnight.

Sentiment became more positive in the afternoon, however, after data showed growth in the US expanded at a two per cent annual rate, just above the 1.9 per cent estimate of analysts polled by Reuters.

“I don’t think it’s going to be a sustained rally. I just think there are too many question marks in terms of the earnings,” Yusuf Heusen, a sales trader at IG, said.

After a short-lived improvement in September, earnings momentum is deteriorating again for eurozone companies, according to Thomson Reuters Datastream.

Earnings momentum is calculated by using analysts’ upgrades minus downgrades over the past three months as a percentage of total estimates. Spain and Italy, both at about -6.6 per cent, are the worst off, while France and Germany are faring better, at -3.1 per cent and -3.7 per cent respectively.

As analysts began cutting their forecasts for Randstad after it warned of sales declines in Europe on Thursday, shares in the Dutch staffing firm floundered, off 4.7 per cent at the bottom of a trading range started in early August.

Goldman Sachs cut its recommendation on Randstad to “neutral” from “buy” and lowered its 2012-14 earnings per share estimates by up to 17 per cent to take into account worsening conditions in Europe for temporary staffing.

Ericsson was left nursing a 3.9 per cent fall after posting a slightly smaller-than-expected 42 per cent drop in quarterly profit on shrinking margins, staying cautious on outlook and announcing more cost cuts to cope with the global slowdown.

Publicis brought more bad news for the advertising sector – seen as a bellwether for the global economy – reporting a marked slowdown in its growth in the third quarter, a day after rival WPP cut revenue outlook.

Falling demand in Europe prompted building materials group Saint-Gobain to warn that 2012 profits would suffer more than previously expected, while car maker Renault said volumes will fall short of last year’s.

“We expected a difficult reporting season. The earnings that companies reported so far are in line with our expectations and confirm the existing trend of negative earnings revisions,” Tammo Greetfeld, strategist at Unicredit, said.

“We expect the Euro STOXX 50 to be clearly below current levels by year end.” The EuroSTOXX 50 ended up 0.5 per cent at 2,496.10 yesterday.

In Europe, 54 per cent of companies have missed revenue forecasts so far, but the real concern is in the US where around 64 per cent of corporates have reported revenue below analyst expectations. (Reuters)