European shares pulled back from two-year highs yesterday as heavyweight defensive sectors dropped and some earnings reports disappointed, though oil stocks were a bright spot.
The pan-European STOXX 600 index reversed earlier gains to end the session 0.5 per cent lower, after trading at its highest level since August 2015 over the past few days.
The DAX ended the session down 0.7 per cent after hitting a new high. “When you consider how much ground the FTSE 100, DAX and CAC have made in the past couple of months, a pullback of this size isn’t anything [out] of the ordinary,” David Madden, market analyst at CMC Markets UK, said in a note.
Falls in health stocks and large consumer staples like Nestle and AB Inbev weighed most. These sectors are sensitive to movements in the dollar, which rose.
Barring surprises, 2017 will be a year to remember
A number of disappointing earnings updates also put a dampener on sentiment. BMW fell 2.8 per cent after its third-quarter earnings fell 5.9 per cent, near the low-end forecast in a Reuters poll, due to upfront costs for new technologies and models. Chipmaker Dialog Semiconductor dropped 5.7 per cent following a cautious outlook for the fourth quarter.
Also under pressure after their updates were shares in Danish shipping group A.P. Moller Maersk, Siemens Gamesa and London-listed security group G4S, all down 4.7 to 7.1 per cent.
However, German lighting manufacturer Osram saw its shares reverse losses to end 5.7 per cent higher, the top STOXX gainer, after the market looked beyond the firm's modest 2018 forecast to its plans for future growth.
Imperial Brands also nudged 0.5 per cent higher. It reported full-year sales roughly in line with expectations, helped by an improvement in the second half, and announced it would expand its efforts in the vaping market.
In spite of yesterday’s disappointing updates, the earnings season in Europe is progressing well, with more than 60 per cent of MSCI Europe companies having already reported results.
According to Thomson Reuters IBES data, 56 per cent of them have beaten analyst expectations and nine per cent were in line.
Enrico Vaccari, fund manager at Consultinvest, said he was upbeat for European equities because of a strong economic recovery, a favourable monetary policy outlook and a weaker euro.
“It's hard to find any negative news. Historically the period between November and March, has been favourable for stocks and barring surprises, 2017 will be a year to remember,” he said.
The STOXX 600 is up 9.2 per cent so far this year, while the DAX is up 16.5 per cent.