European equities weighed down by earnings worries

Mon Jul 16, 2012 3:53am EDT

* FTSEurofirst 300 down 0.2 pct after six weeks of gains
    * Earnings season off to a gloomy start, more to come
    * Technical charts offer some support to EuroSTOXX 50

    By Toni Vorobyova
    LONDON, July 16 (Reuters) - European shares edged down on
Monday, with investors reluctant to push the market higher after
six weeks of gains in the early stages of a second quarter
earnings season that is bringing signs the euro zone crisis is
weighing on profits. 
    UK software marker Sage said conditions in European
markets have toughened, clothing retailer Hennes & Mauritz
 posted slower than expected sales growth in June and   
 Swedish banking group SEB warned that Europe's
austerity measures and sovereign debt woes could start to
infiltrate its traditionally robust core Nordic markets.
    "I wouldn't say there is too much optimism," said Francois
Duhen, equity strategist at CM-CIC Securities in Paris.
    "To my clients, I am calling it a profit warning season."   
    The FTSEurofirst 300 fell 0.2 percent to 1,040.19
points by 0738 GMT, with investors taking profits on a six-week
run of gains that has seen the index add some 9.5 percent since
an early-June trough.
    With most companies yet to report, investors were concerned
that the earnings season could prove a fresh negative catalyst
for the European equities market, which had been enjoying a
brief respite after politicians took some decisive steps to ease
the euro zone crisis last month.     
    Miner Rio Tinto dropped 1.7 percent as UBS and
Nomura downgraded price targets, updating their forecasts to
reflect the recent slump in metal prices.
    Nokia dropped 3.3 percent, with data from Markit
showing short interest in the phone manufacturer has surged to
an all-time high ahead of its results due on Thursday. News that
the Finnish firm has slashed the U.S. price of its flagship
smartphone Lumia 900 in half, in an effort to stanch losses in
market share to rivals such as Apple, further fuelled
concerns.  
    "Nokia's sales and earnings are on a slippery slope as seen
in its lowering of guidance," strategists at Liberum Capital
said, adding that the shares - already at 16-year lows - may not
fall much further but that it is "difficult to foresee any
positive catalyst for the stock before the fourth quarter 2012
at the earliest".
    
    With Europe in no position to drive earnings, investors
remained on high alert on the health of the global economy,
including looking ahead to U.S. June retail sales at 1230 GMT. A
weak number would generally be bad for risk assets such as
stocks, unless it is seen as sufficiently poor to galvanise the
U.S. Federal Reserve into a fresh round of stimulus action.
    Technical charts also offered some support to equities, with
EuroSTOXX 50 holding above support at 2,200 points, despite
trading 0.4 percent down on the day at 2,250.88.
    "We had the 2,200 (support) level, which was defended and
now it stands a good chance to ... cross the 10-day moving
average and that would generate a new trading buy signal," said
Petra Kerssenbrock, technical strategist at Commerzbank in
Frankfurt.
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.