European shares pause after Remy, Hugo Boss warnings

Tue Nov 26, 2013 6:52am EST

* FTSEurofirst 300 down 0.3 pct

* China hits profits at Remy, Hugo Boss

* Charts show scope for more gain on DAX

By Toni Vorobyova

LONDON, Nov 26 (Reuters) - European shares lacked the momentum to extend a rally to multi-year highs on Tuesday, with a mixed outlook for corporate earnings underlined by downbeat signals from Remy Cointreau and Hugo Boss.

Shares in Remy dropped 11.6 percent after the French spirits group warned of a double-digit decline in full-year operating profit because of a slowdown in China.

Subdued demand from China also hit performance at German fashion house Hugo Boss, and shares fell 3.1 percent after it delayed its 2015 profit target.

Investors had been expecting earnings to pick up this year as the European and global economy improves, but so far this has not happened and momentum - analyst upgrades minus downgrades - remains mired in negative territory.

"European equities are beginning to be a little bit stretched based on the fact that earnings expectations have not completely reversed ... You are seeing the forward (price-to-earnings) multiple rising, but the forward expectations for earnings are actually flat and that's not normally a very healthy sign," said Peter Garnry, strategist at Saxo Bank.

"I think it will change as we move into the new year and everyone begins to revise up their targets for the euro area economy."

Relatively light volumes underscored the still optimistic investor stance, with most seeing Tuesday's move as a temporary correction and a reason to buy on the dips rather than the start of a downtrend. Volumes on the FTSEurofirst 300 stood at 22 percent of the 90-day daily average going into midsession.

The index itself was down 0.3 percent at 1,298.09 points by 1133 GMT, in sight of a 5-year high of 1,316.42 set earlier this month.

"Indexes are trading at 5-year highs, but stocks remain cheap nevertheless," said Hans Stoter, chief investment officer at ING Investment Management, who also expects European earnings to improve next year and grow by about 12 percent on average.

"We have a positive bias for European equities."

Technical charts, too, pointed to the scope for more gains, including in the German DAX, so far the only major blue-chip European index to have followed Wall Street to record highs this year. The DAX was steady at 9,297.85 points.

"While the recent strength in the DAX is reflected in overbought readings on the daily, weekly and monthly RSI (relative strength index) studies, recent price action remains constructive," said Chris Wright, analyst at Informa Global Markets.

"Scope is therefore seen for further near-term strength towards the 9,500.00 psychological resistance level ... where we may see some profit-taking. However, with the 10,000.00 level coming into view, any dips are viewed as corrective as bulls look to resume the uptrend."

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