European equities finished a volatile session broadly flat yesterday after investors balanced fresh assurances of global central bank stimulus against some disappointing earnings and political uncertainty in Italy.
The pan-European FTSEurofirst 300 index closed flat at 1,168.36 points, recovering some poise in afternoon trade after Janet Yellen became the latest US Federal Reserve official to reaffirm a commitment to its monetary easing policy for some time yet.
Italy’s FTSE MIB, however, was a clear laggard, posting close to a three-month intra-day low and finishing 0.9 per cent lower on signs that the country could be edging towards another election within months after polls ended in a stalemate last week.
“Short term, the uncertainty is dominating the equity market,” UniCredit equity strategist Tammo Greetfeld said. “This period of heightened uncertainty will most likely persist for some time. “The Spanish and Italian equity markets are most at risk from price setbacks, and investments should be focused on the German equity market, as this offers the best chance of continuing the positive development of the past several months.”
Within sectors, Greetfeld recommended what he termed “stable growth”, namely food and beverage, healthcare and personal and household goods.
Those were among the top performers yesterday, with gains of between 0.4 per cent and 0.7 per cent. Basic resources and banks, on the other hand, were the laggards.
The latter were hit by below forecast earnings at heavyweight HSBC, the shares of which fell 2.5 per cent in more than double their usual daily volumes.
Among other things, HSBC said it was hit by falling market values in equities, which crimped its trading revenue. The low volumes have also been a key drag on equity markets as a whole, with trading activity on FTSEurofirst 300 last year nearly 40 per cent below that of 2007, Thomson Reuters data shows.
Other heavy fallers included Belgian telecoms group Belgacom , Britain’s Lloyds Bank and German retailer Metro.
With the 2012 earnings season in Europe nearly two thirds of the way through, 39 per cent of STOXX 600 companies that have already reported have missed forecasts, prompting analysts to cut this year’s views by an average of 1.6 per cent in the past 30 days, according to Thomson Reuters Starmine.
The results have played a key part in stalling the June to January rally in European equity markets to multi-year peaks. “The trouble is that the market rehabilitated itself, not the economy, so that’s why we have latterly been rowing back on our shorter-term optimism on the European equity market,” said Andrew Parry, chief executive of Hermes Sourcecap.